hard · Quantitative Finance
An investor has a constant relative risk aversion γ = 4. The risky asset has an expected return of μ = 10% and a volatility of σ = 20%, while the risk-free rate is r = 3%.
What is the Merton optimal fraction of wealth to invest in the risky asset?
- 25.00%
- 17.50%
- 43.75%
- 87.50%
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