Question

In: Finance

Consider the following model: What is the degree of risk aversion required such that an investor...

Consider the following model:

What is the degree of risk aversion required such that an investor would put 100% of his portfolio in the risk-free asset? (i.e.

A = infinity

A = 0

A = 3.5

A = Average of all investors

A = exp(R*T)

Solutions

Expert Solution

A= e(R*T)

It can't be infinity as investor is investing in any asset and it can't be 0 as investor is not investing in any risky asset.

We can't give specific number to risk aversion of a person who is solely investing in risk free asset and it can't be average of risk aversion as it varies person to person.

So we are taking accumulated value of investment.

jeff jeffy answered 2 years ago
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