Mr Swimmer, Mrs Runner, and Mrs Skier are friends and co-investors. Their risk aversion coefficients are 2, 3, and 5, respectively. After careful analysis, they have figured out that the expected stock market return is 7.9 per cent, while the expected return on gold is -2.5 per cent. The volatilities are 18.4 per cent, and 7.6 per cent, respectively. Further, the correlation between stocks and gold is 0.59. No risk-free security is available. Which
of the following statements is most accurate in this case? A correct answer yields
100% of the points for this question, a wrong answer -50% (minus fifty
per cent), and no answer zero points.

Question

Mr Swimmer, Mrs Runner, and Mrs Skier are friends and co-investors. Their risk aversion coefficients are 2, 3, and 5, respectively. After careful analysis, they have figured out that the expected stock market return is 7.9 per cent, while the expected return on gold is -2.5 per cent. The volatilities are 18.4 per cent, and 7.6 per cent, respectively. Further, the correlation between stocks and gold is 0.59. No risk-free security is available.  Which
 of the following statements is most accurate in this case? A correct answer yields 
100% of the points for this question, a wrong answer -50% (minus fifty 
per cent), and no answer zero points.

Answer

An infinitely risk averse person would invest -10.7 per cent of his or her wealth in stocks.

Answer

Given everything else, the Sharpe ratio of Mr Swimmer's portfolio will be larger than the Sharpe ratio of Mrs Skier's portfolio.

Answer

Mrs Runner should invest 108.1 per cent of her wealth in stocks.

Answer

Mrs Skier will invest more in stocks than any of the other persons.

Crowdly

Mr Swimmer, Mrs Runner, and Mrs Skier are friends and co-investors. Their risk a...

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