Business, 19.02.2020 02:54 kadinmorgan

Average annual return on large stocks and 1-month T-bills; standard deviation and Sharpe ratio of large stocks over time

*The probability that the estimate of the Sharpe ratio over 1926–2012 equals the true value and that we observe the reported, or an even more different Sharpe ratio for the subperiod.

a. If your risk-aversion coefficient is A = 3.5 and you believe that the entire 1926–2012 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is U = E(r) – 0.5 × Aσ2. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "%" sign in your response.)

T-bills %
Equity %
b. If your risk-aversion coefficient is A = 3.5 and you believe that the entire 1968–1988 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "%" sign in your response.)

T-bills %
Equity %

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Average annual return on large stocks and 1-month T-bills; standard deviation and Sharpe ratio of la...

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