The Optimal Proportion of the Risky Asset in the Complete

question 36

Essay

The optimal proportion of the risky asset in the complete portfolio is given by the equation y * = [E(r_P)-r_f]/(.01A * Variance of P).For each of the variables on the right side of the equation,discuss the impact of the variable's effect on y* and why the nature of the relationship makes sense intuitively.Assume the investor is risk averse.

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Definitions:

Luck

The force that seems to operate for good or ill in a person's life, as in shaping circumstances, events, or opportunities.

Fixed Ratio

A schedule of reinforcement where a response is reinforced only after a specified number of responses, leading to a high and steady response rate.

Variable Ratio

refers to a schedule of reinforcement where a response is reinforced after an unpredictable number of responses, making it a powerful maintainers of behavior in operant conditioning.

Fixed Interval

A schedule of reinforcement where a response is rewarded only after a specified amount of time has elapsed.