Use the following table to answer the question below. If you have the standard utility function...

Use the following table to answer the question below. If you have the standard utility function described in the lecture with A = 6, and you think the future will be like the 1926-1946 period, what fraction of your investments should be in the T-bill (i.e., the portfolio weight of T-bill)?

Round your answer to 4 decimal places. For example, if your answer is 3.205%, then please write down 0.0321.

time	S&P500 ret.	T-bill ret.	Std. dev.
1926-2012	11.67%	3.58%	20.48%
1989-2012	11.1%	3.52%	18.22%
1968-1988	10.91%	7.48%	16.71%
1947-1967	15.35%	2.28%	17.66%
1926-1946	7.46%	0.97%	26.17%

Solutions

Expert Solution

Fraction of your investments should be in the T-bill (i.e., the portfolio weight of T-bill)?

=1-(7.46%-0.97%)/(6*26.17%*26.17%)
=0.8421

jeff jeffy answered 1 year ago

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