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Unformatted text preview: ( σ,μ )-Cartesian plane. 1 (b) Sharpe ratio for the CAL on ( a ) is _____________. Suppose that you have utility function U ( x 1 ,x 2 ) = μ x-1 2 Aσ 2 x , with A = 0 . 05 , over portfolio x = ( x 1 , 1-x 1 ) , where x 1 is the % invested in the risky asset, R P and (1-x 1 ) the % invest in the risk-less asset, r f . (c) The utility level of portfolio (0 , 1) is __________, the utility level of portfolio (1 , 0) is ___________. (d) Write the optimal portfolio optimization problem and solve it (for full credit you must write: objective function, choice variable, and constraints, if any). (e) In your CAL diagram, indicate the mean and st. dev. of the optimal portfolio, denote it σ * ,μ * . 2...
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- Summer '08
- Economics, Modern portfolio theory, Instructor Rene Schwengber, Financial Economics Summer