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Problem:

Assume that the expected return on stocks is 12%, the standard deviation of stocks is 18%, and the riskfree rate is 5%. Given this information, an investor selects a portfolio with a 70% allocation to stocks and a 30% allocation to the riskfree asset. According to the derivation of risk tolerance found in Equation (17.2),

Required:

Question: What risk tolerance is indicated by this choice? In words, describe what this value means.

Note: Please show how you came up with the solution.

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Category:- Basic Finance
Reference No.:- M91162994

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