00:01
Hello students, welcome back to another question.
00:02
In this question, we have to find out that the with risk averse investor should combine with in order to maximize, maximize what? it has to maximize utility.
00:17
So, we have to basically find out this in the a part or the first part of this question.
00:23
So, basically the investor would want to combine the risk free asset with the portfolio that lies on the cml that is the capital market line.
00:45
So, we have investor should find out this first and the portfolio with the highest sharpe ratio that is sharpe ratio is highest should combine with that and the sharpe ratio is defined as the expected return, the expected return minus the risk free rate upon the standard deviation.
01:11
So, since we are given some portfolios.
01:13
So, we will find out the portfolio c, the sharpe ratio comes out to be 0 .3, the portfolio a it comes out to be 0 .33 and for our portfolio b comes out to be 0 .29.
01:31
So, since the sharpe ratio is highest for the portfolio a.
01:37
So, the correct answer is portfolio a that is the option b right.
01:44
Next move on to the next part 1049.
01:47
So, now, the b part says that we have to find out the benefit of what we have to find out the benefit of diversification, diversification means different things right...