Answer:
The value of A is 8
Explanation:
To answer this question, we plug the given figures into the utility function given above
First U = E(r) - A/2 (SD)∧2.
The expected return rate = 0.15
The standard deviation = 0.15
The risk-free rate = 6%
Therefore find A
U = E(0.15) - A/2(0.15)∧2.
U is already given as 6%
0.06= E(0.15) - A/2(0.15)∧2.
0.06-0.15 = -A/2 (0.0225)
= -0.09= -0.01125A
A = 8
the value of A is 8
Finally, if we plug A as 8 into the Utility function given in the question, we still arrive at 6% which validates the use of 8 as our value for A.
