Canvas t the best response to each question Question 24 12 1

Canvas t the best response to each question. Question 24 .12 .15 .25 .24 0.30 0.50 0.29 0.21 3 4 U = E(r)-(A/2)s2 Assuming you are risk neutral, which investment would you select? 0 1 O 2 03 O can\'t tell from the information given, you need the optimal portfolio

Solution

Answer is 3

Utility function for any investment is mathematically expressed as:

U = E(r) - 0.5A?²

where A is the risk aversion coefficient.

For a risk neutral investor, risk aversion coefficient is equal to ZERO

Hence, the maximum utility will be derived from the investment with maximum expected return, which is in case of Investment 3 (25%).

Hence, answer is Investment 3