investment <- c(1, 2, 3, 4)
E_r <- c(0.12, 0.15, 0.21, 0.24)
sigma <- c(0.30, 0.50, 0.16, 0.21)
A_cfa <- 4  

U_cfa <- E_r - 0.5 * A_cfa * sigma^2

best_risk_averse <- investment[which.max(U_cfa)]

best_risk_neutral <- investment[which.max(E_r)]

U_cfa
## [1] -0.0600 -0.3500  0.1588  0.1518
best_risk_averse
## [1] 3
best_risk_neutral
## [1] 4

This table summarizes the expected return, variance, and utility levels for different portfolio compositions. Additionally, for the CFA problems:

  1. The best investment for a risk-averse investor (A = 4) is Investment 3.
  2. The best investment for a risk-neutral investor is Investment 4.
  3. The variable A in the utility formula represents investor’s aversion to risk (option B).