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If your risk aversion index a = 4, what is your optimal allocation between risky asset p ( ) and risk-free asset (1- )?

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sakshigupta4990

10.82 is your optimal allocation between risky asset p ( ) and risk-free asset (1- ).

Expected return & Return X Probability.

:. Expected return of fund "A" B #x05+ (-5X0·3) + 20x⋅ 2 => 6 25x.5+ 10x 3+ (-25x-2)510-s LA L

Calculation of standard deviation, and correlations

1X0.5 +121X0·3+ 196X-2 872

√210.25x0.540.25x0.3 +1260.25x0·2 18.90

Co-variance. = 14.5x0.5 +5.5x0·3+ (-497×0.2) -90.5

Co-relation=-90.5 -0.55

8.72×18.90

with the use of the given formula given. Calculation of weight: -

W₁ = (6-4.25) (18.90)² - [ 10.5-4.25x1-90·5)

(6-4.25) (18.90)²+ 10.5-4.25]($.72)²=-(6-4-25+1015-4:25] × (90·5)

625-1175 + 565.625

5) 1190.7425 = 0.65 1824.3575

625.1175+ 475.24+724

1-0.65 0.35 A

7.5757 • Expected return of portfolio = 6x0.65 +10.5x0.35

Standard deviation (r) of portfolio - 18-72x0.65) + (18 · 9X8:35) 72 (8-72X0·65) (8·4x0-35 x0.55

7

10.82.

A risky asset is an asset that involves some risk. Risky assets generally refer to assets with high price volatility, such as Examples: Stocks, Commodities, High Yield Bonds, Real Estate, and Currencies.

Learn more about the risky assets at

https://brainly.com/question/25821437

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