Arlo is risk averse with mean variance utility and coefficient of risk aversion A=2. Which of...

Arlo is risk averse with mean variance utility and coefficient of risk aversion A=2. Which of the following portfolios would Arlo prefer?

a. A risk free portfolio with return of 6%.

b. μ=7%,σ=10%

c. μ=10%,σ=20%

d. μ=15%,σ=30%

e. They all provide the same utility.

Solutions

Expert Solution

1.
=6%-0.5*2*0%*0%=0.06

2.
=7%-0.5*2*10%*10%=0.06

3.
=10%-0.5*2*20%*20%=0.06

4.
=15%-2*0.5*30%*30%=0.06

Option E

jeff jeffy answered 2 years ago

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