Desmond has a signed listing agreement with his clients, the Harpers. In exchange for helping the Harpers list, market, and sell
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Answer:
Answer is explained in the explanation section.
Explanation:
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Solution:
SD = Standard Deviation
Using utility function, E(R) = Rp - 0.005 x A x = 1.34 - 0.005 x 3x
Using utility function, E(R) = 1.093%
If the weight in the risky portfolio is let's say, "a" then,
weight in the risk-free asset = 1 - a
So,
E(R) = a x Rp + (1 - a) x Rf
1.093% = a x 1.34% + (1 - a) x 0.50%
Solving for "a"
a = 70.56% - weight in risky portfolio
and 1 - a = 29.44% - weight in risk-free asset.
Similarly, if you want a return of 1.10%,
we can follow the above steps and get
1.1% = a x 1.34% + (1 - a) x 0.5%
Weight in risky portfolio,
a = 71.43%
weight in risk-free asset,
1 - a = 28.57%
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