A Portfolio Has an Expected Rate of Return of 0

question 72

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 percent.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
• E)none of the above

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Definitions:

Long-run Average Total Cost

The average total cost of production when all inputs, including capital, are variable, typically illustrating economies of scale.

Marginal Cost

The increased cost resulting from the creation of one more unit of a good or service.

Average Total Cost

The total cost of production divided by the quantity produced, indicative of the cost per unit of output.

Total Cost

The combined total of all costs associated with generating goods or services, covering both fixed and variable expenses.