Question: Assume that you manage a risky portfolio with an expected rate of return of 19% and a standard deviation of 34%. The T-bill rate is 8%. Your client's degree of risk aversion is A = 3.2, assuming a utility function U = E(r) - ½As².
a. What proportion, y, of the total investment should be invested in your fund?
b. What is the expected value and standard deviation of the rate of return on your client's optimized portfolio?