risk aversion A = 3
risk premium S = 0.08 , std deviation of S = 0.22
risk premium H = 0.10, std deviation of H = .37
Assume: p (correlation coeff) = 0 ; disregard the risk free rate; horizon is 1 year.
What is the optimal asset allocation of S and H? What is the risk premium on this portfolio?
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
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