medium · Quantitative Finance
An investor with a coefficient of relative risk aversion γ = 4 allocates wealth between a risk-free asset (r=3%) and a risky asset (μ=11%, σ=25%).
According to the Merton optimal portfolio fraction, what percentage of wealth should be in the risky asset?
- 32.0%
- 12.8%
- 50.0%
- 80.0%
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