There are three risky assets described in the table below: Asset Expected Return 1 2 5% 7% 6.5% There are three investors X, Y, and Z whose preferences are represented by the utility function U = E(r) - 0.5A02, where A is the risk-aversion coefficient. Among the three investors, Investor X is the least risk-averse, while investor Z is the most risk-averse. The risk-free rate is 2%. If they intend to form a complete portfolio of the risk-free asset and one of the three risky assets, which risky portfolio will be picked by investors X, Y, and Z respectively? 3 O a. X:Asset 2; Y: Asset 2; Z: Asset 2 O b. X:Asset 1; Y: Asset 1; Z: Asset 1 X: Asset 3; Y: Asset 3; Z: Asset 3 There is no sufficient information to tell Standard deviation O c. Od. O e. X: Asset 3; Y: Asset 2; Z: Asset 1 10% 20% 30%

There are three risky assets described in the table below: Asset Expected Return 1 2 5% 7% 6.5% There are three investors X, Y, and Z whose preferences are represented by the utility function U = E(r) - 0.5A02, where A is the risk-aversion coefficient. Among the three investors, Investor X is the least risk-averse, while investor Z is the most risk-averse. The risk-free rate is 2%. If they intend to form a complete portfolio of the risk-free asset and one of the three risky assets, which risky portfolio will be picked by investors X, Y, and Z respectively? 3 O a. X:Asset 2; Y: Asset 2; Z: Asset 2 O b. X:Asset 1; Y: Asset 1; Z: Asset 1 X: Asset 3; Y: Asset 3; Z: Asset 3 There is no sufficient information to tell Standard deviation O c. Od. O e. X: Asset 3; Y: Asset 2; Z: Asset 1 10% 20% 30%

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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