library(readxl)
file_path <- "Chapter6CFA.xlsx"
CFA6 <- read_excel(file_path)
CFA6$Utility_A_4 <- CFA6$Ex_r-0.5*4*CFA6$St_d^2
CFA6
## # A tibble: 4 × 4
##   Investment  Ex_r  St_d Utility_A_4
##        <dbl> <dbl> <dbl>       <dbl>
## 1          1  0.12  0.3       -0.06 
## 2          2  0.15  0.5       -0.35 
## 3          3  0.21  0.16       0.159
## 4          4  0.24  0.21       0.152
  1. If we were risk averse with A = 4, we would choose the 3rd investment
CFA6$Utility_A_0 <- CFA6$Ex_r-0.5*0*CFA6$St_d^2
CFA6
## # A tibble: 4 × 5
##   Investment  Ex_r  St_d Utility_A_4 Utility_A_0
##        <dbl> <dbl> <dbl>       <dbl>       <dbl>
## 1          1  0.12  0.3       -0.06         0.12
## 2          2  0.15  0.5       -0.35         0.15
## 3          3  0.21  0.16       0.159        0.21
## 4          4  0.24  0.21       0.152        0.24

  1. If we were risk neutral, we would only consider the expected return of the investment, so we would choose the 4th investment

  2. b.Investor’s aversion to risk.