medium · Quantitative Finance qf-core
An investor allocates wealth between a risky asset with expected excess return μ - r = 8% and volatility σ = 20%, and a risk-free asset.
If the investor's coefficient of relative risk aversion is γ = 4, what is the Merton optimal fraction (π^*) to be held in the risky asset?
- 25%
- 50%
- 40%
- 100%
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