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Calculate her expected utility

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Assume an investor with the following utility function: U = E(r) - 1/2(s2). 

Calculate her expected utility for the below two possible investment choices.  

All-stock portfolio: Expected return = 14% and Standard Deviation (s) = 18%

Bond Portfolio: Expected return = 9% and Standard Deviation (s) = 11%

A research analyst suggests that the above Bond Portfolio can be expanded to add some new types of bonds which will increase the expected return to 11%. The investor is willing to invest in this new combined portfolio as long as the utility of the combined portfolio is at least 10%. What is the maximum volatility this new consolidated bond portfolio can have for this to be feasible?

Reference no: EM132478161

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