What is his risk aversion coefficient

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Reference no: EM131956130

An investor is indifferent between invest 1million in the risky asset and the risk-free asset. The risky asset has an expected return 14% per year and Standard Deviation of 21% per year. The risk-free lending rate is 7% per year. The risk-free borrowing rate is 11%.

1. What is his risk aversion coefficient?

2. What is the optimal mix of the risky and risk-free asset?

3. When the bank offers the truly risk-free investment opportunity of 7% return per year. Is it worth for invest instead of holding the optimal mix in Question2? Please explain.

Reference no: EM131956130

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