Consider a portfolio that offers an expected rate of return of 12% and a standard deviation of 24%. T-bills offer a risk-free 6% rate of return. What is the maximum level of risk aversion for which the risky portfolio is still preferred to T-bills?
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Ответ:
The maximum level of risk aversion for which the risky portfolio is still preferred to T-bills must be LESS THAN 3.09
Explanation:
Denote utility as U; r as rate of return; A as risk aversion and σ as standard deviation.
Then take U = E(r) - 0.5Aσ² as Equ. (1)
this makes the utility level for T-bills to be 0.07
To get the utility level for the risky portfolio,
Substitute data into Equ. (1),
U = 12% - 0.5 × A × (24% - 6%)²
U = 0.12 - 0.0162 × A
U = 0.12 - 0.0162A
For the risky portfolio to be preferred to bills, these conditions must be fulfilled:
(1). 0.12 - 0.0162A MUST BE GREATER THAN 0.07
(2). The risk aversion, A, MUST BE LESS THAN 0.05/0.0162 = 3.09
Therefore, the maximum level of risk aversion for which the risky portfolio is still preferred to T-bills must be LESS THAN 3.09
Ответ:
When you convert your range of data into an Excel table, by default, the Excel shades every other row in the table, making them easy to read. You can turn on/off the banded-row option from Table Style Options under the Design tab. You can also have banded columns.
Explanation: