Determining the chief investment officer

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As the chief investment officer for a money management firm specializing in taxable individual investors, you are trying to establish a strategic asset allocation for two different clients. You have established that Ms. A has a risk-tolerance factor of 7, while Mr. B has a risk-tolerance factor of 27. The characteristics for four model portfolios follow:

ASSET MIX
Portfolio Stock Bond ER σ2
1 9 % 91 % 7 % 6 %
2 22 78 8 10
3 60 40 9 15
4 86 14 10 23

A). Calculate the expected utility of each prospective portfolio for each of the two clients. Do not round intermediate calculations. Round your answers to two decimal places.

Portfolio Ms. A Mr. B

1
2
3
4

B). Which portfolio represents the optimal strategic allocation for Ms. A? Which portfolio is optimal for Mr. B?

Portfolio -Select-1234 represents the optimal strategic allocation for Ms. A. Portfolio -Select-1234 is the optimal allocation for Mr. B

C). For Ms. A, what level of risk tolerance would leave her indifferent between having Portfolio 1 or Portfolio 2 as her strategic allocation? Round your answer to the nearest whole number. _________________.

Reference no: EM132507147

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