Risk aversion and Utility function
Not what you're looking for?
The risk-free rate is 5% and two stocks have the following expected returns and standard deviations:
STOCK A
E(ra) = 10%
sigma(a)=20%
STOCK B
E(rb) = 15%
sigma(b) = 27%
An investor with a degree of risk aversion of 3 and a utility function of the form U = E(r) - 1/2Asigma^2 would find that:
a) only stock A is attractive
b) only stock B is attractive
c) neither stock A nor stock B is attractive
d) both stock A and stock B are attractive
Purchase this Solution
Solution Summary
Given expected returns and standard deviations of returns for two stocks and the risk aversion and utility function for an investor, the solution determines which stock is attractive.
Solution Preview
The risk-free rate is 5% and two stocks have the following expected returns and standard deviations:
STOCK A
E(ra) = 10%
sigma(a)=20%
STOCK B
E(rb) = 15% ...
Purchase this Solution
Free BrainMass Quizzes
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
Introduction to Finance
This quiz test introductory finance topics.
Basics of corporate finance
These questions will test you on your knowledge of finance.
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)
Lean your Process
This quiz will help you understand the basic concepts of Lean.