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LPoulin133

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tT
发表于 2011-7-11 19:38 | 只看该作者

risk adjusted utility

factors, adjusted, reading, one
In reading 26 (book 3 p 237) they give a formula for Utility as

U = E(R) - .5*Risk Aversion*Volatility

But in reading 32 (book 4 p 254) they give it as

U = Expected Active Return - Risk Aversion * Volatility

I'm fine with one focusing on active returns and the other on overall returns...but why the .5 multiplier in one but not the other? Anybody have an intuition for this? Maybe they`re just assigning "risk aversion" factors as twice as large in the formula from R26? Think its worth worrying about?

Thanks,
Ben

 

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pennyless

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发表于 2011-7-11 19:38 | 只看该作者
Good observation.
The standard is multiplying with .5. I would definitely not worry about it. They would give you the formula to use if they want you to calculate.

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bpdulog

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发表于 2011-7-11 19:38 | 只看该作者
Just another stuff-up from CFAI - the inconsistencies in the readings and the sample, mock and past exams is just appalling.

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