What fraction of your portfolio should be allocated

Reference no: EM132208162

Part 1 - If your risk-aversion coefficient is A = 4 and you believe that the entire 1950-2017 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity?

What if you believe that the 1984-2017 period is representative?

How do you results change if you believe that the 1950-1983 period is representative?

What do you conclude upon comparing your answers to (1), (2) and (3)?

Part 2 - Repeat Part 1 with a coefficient of risk aversion A = 20. Comment on the relationship between risk aversion and asset allocation.

Reference no: EM132208162

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