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Unformatted text preview: #y(orp) is the proportion of the initial wealth allocated to P. 20%=y(orp)*(58.62%)+(1-y(orp))*4.75% Y(orp)=28.3089% 28.3089%*1000=283.089$ 283.089*0.0285=8.06$ inBHP 283.089*0.9715=275.020 in CBA And the rest of the money invest in risk free asset by lending out 1000-283.089=716.911$ ii)Compute the consequent amount of risk faced by the investor. The SD of the ORPl is 28.23%. Risk=y(orp)*28.23%=7.99% Question 3 Another investor who also has $1,000.00 borrows an additional $5,000.00 to invest. Compute the degree of risk aversion of the investor. Total wealth is 6000 including 5000 borrowing in a risk free rate. So y=6. According to the formula in the text book (7-8), We know that E(R)=58.87% SD(R)=28.36% using the borrowing risk free (ORP) Y=E(R)-rf/0.01*A*(SD^2) A=1.0955...
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This note was uploaded on 06/12/2011 for the course ASB 1001,2522, taught by Professor Nicole during the One '09 term at University of New South Wales.
- One '09