hard · Quantitative Finance qf-core
An investor maximizes expected lifetime utility with a constant relative risk aversion γ = 4. The risky asset has an expected return μ = 10%, volatility σ = 20%, and the risk-free rate is r = 2%.
According to the Merton portfolio problem, what is the optimal fraction π^* of wealth to hold in the risky asset?
- 50%
- 200%
- 12.5%
- 25%
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