Problem:
The risk-free rate is 5% and two stocks have the following expected returns and standard deviations:
STOCK A
E(ra) = 10%
sigma(a)=20%
STOCK B
E(rb) = 15%
sigma(b) = 27%
An investor with a degree of risk aversion of 3 and a utility function of the form U = E(r) - 1/2Asigma^2 would find that:
a) only stock A is attractive
b) only stock B is attractive
c) neither stock A nor stock B is attractive
d) both stock A and stock B are attractive