Suppose the risk free rate is 4%, the expected rate of return is 8% and the variance of a portfolio is estimated as 500%. What is the slope of the Capital Allocation Line? Interpret the meaning of your estimation of the slope. [see p.168 of your text]
Imagine that the expected returns that are associated with an investment are 0.06, 0.08, 0.094, 0.12 and 0.134. If the standard deviations that are associated with the returns are 0, 0.022, 0.066, 0.154, and 0.176 respectively, what is the investor’s utility function? [see p. 159, pp.170-171 of your text]
Plot the utility function of the investor on a scale of 0, 0.1, 0.2, 0.3, and 0.4 for additional credit.