A Portfolio Has an Expected Rate of Return of 0

question 62

Multiple Choice

A portfolio has an expected rate of return of 0.15 and a standard deviation of 0.15. The risk-free rate is 6%. An investor has the following utility function: U = E(r) − (A/2) s². Which value of A makes this investor indifferent between the risky portfolio and the risk-free asset?

• A) 5
• B) 6
• C) 7
• D) 8

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Definitions:

Piano

A musical instrument played by pressing keys, causing hammers to strike strings, thus producing a wide range of tones.

Operant Conditioning

An instructional process by which the magnitude of a behavior is influenced by giving rewards or imposing punishments.

Instrumental Learning

Instrumental learning is a learning process where behavior is modified based on the consequences it produces, such as rewards or punishments.

Classical Conditioning

The process of learning through the repeated combination of two stimuli, with the outcome being that a response initially elicited by the second stimulus is over time triggered by the first stimulus independently.