Exam:
1a)
Robyn’s risk aversion can be described as risk averse as she is willing to pay money to avoid
an actuarily fair gamble. Can also be described as rational. U’(W) > 0, U’’(W) < 0. U = √ W is
another utility equation which references the same preferences.
Part B Question 1
, A is below both lines as it has idiosyncratic risk. B has no idiosyncratic risk and therefore lies
on both the securities market line and the capital market line. Due to this, this means that B
has a higher expected Sharpe Ratio.
QUESTION 2
1a)
Robyn’s risk aversion can be described as risk averse as she is willing to pay money to avoid
an actuarily fair gamble. Can also be described as rational. U’(W) > 0, U’’(W) < 0. U = √ W is
another utility equation which references the same preferences.
Part B Question 1
, A is below both lines as it has idiosyncratic risk. B has no idiosyncratic risk and therefore lies
on both the securities market line and the capital market line. Due to this, this means that B
has a higher expected Sharpe Ratio.
QUESTION 2
