Exhibit 16 -Refer to Exhibit 16

question 34

Multiple Choice

Exhibit 16.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A portfolio manager is trying to establish a strategic asset allocation for two different clients, Bob Bowman and Tom Luck. Bob Bowman has a risk tolerance factor of 22 and Tom Luck has a risk tolerance factor of 6. The characteristics of the three model portfolios under consideration are provided in the table below. $\begin{array}{ccccc}&\text { Asset Mix}&&\text { Expected}\\\text { Portfolio } & \text { Stock } & \text { Bond } & \text { Return } & \text { Variance } \\\hline \text { A } & 0.75 & 0.25 & 0.12 & 0.45 \\\text { B } & 0.4 & 0.6 & 0.08 & 0.16 \\\text { C } & 0.3 & 0.7 & 0.05 & 0.06\end{array}$
-Refer to Exhibit 16.1. The expected utilities of Portfolios A, B and C for Bob Bowman are

• A)Portfolio A = 9.95, Portfolio B = 7.27, Portfolio C = 4.73
• B)Portfolio A = 4.5, Portfolio B = 5.33, Portfolio C = 4.0
• C)Portfolio A = 7.95, Portfolio B = 5.33, Portfolio C = 4.73
• D)Portfolio A = 3.5, Portfolio B = 7.27, Portfolio C = 4.73
• E)Portfolio A = 5.33, Portfolio B = 7.27, Portfolio C = 4.73

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Definitions:

Constitutional Factors

Physical and genetic characteristics of an individual that influence his or her biological functioning.

Acquisition

The act of gaining possession or knowledge of something.

Unobservable Mental States

Internal psychological conditions, such as thoughts, beliefs, and desires, that cannot be directly observed by others.