Assume an investor with the following utility function: U = E(r) - 3/2(s 2 ).
-To maximize her expected utility,she would choose the asset with an expected rate of return of _______ and a standard deviation of ________,respectively.
A)12%; 20%
B)10%; 15%
C)10%; 10%
D)8%; 10%
E)none of the above

Question

Quizplus · Accepted Answer

The investor's utility function is U = E(r) - 3/2(sS1U1P12S1S1P0). The expected rate of return is E(r), and the standard deviation is s. The investor will choose the asset with the highest expected utility. The expected utility is maximized when the expected rate of return is 10% and the standard deviation is 10%.

Assume an Investor with the Following Utility Function: U =