The proportion (%) (of his complete portfolio) that investor X should invest in the risky portfolio given his level of risk aversion.

To determine the proportion of the complete portfolio that Investor X should invest in the risky portfolio, we use the formula:

\[
y^* = \frac{E(R_p) - R_f}{A \times \sigma_p^2}
\]

Where:
- \( E(R_p) \) is the expected rate of return on the risky portfolio (12% or 0.12).
- \( R_f \) is the risk-free rate (6% or 0.06).
- \( A \) is the risk aversion coefficient (2.47, as calculated earlier).
- \( \sigma_p \) is the standard deviation of the risky portfolio (20% or 0.20).

Let's calculate the proportion \( y^* \).Investor X should invest approximately 60.73% of their complete portfolio in the risky portfolio given their level of risk aversion.

Would you like more details or have any questions? Here are some related questions to explore:

1. How does changing the risk-free rate affect the proportion invested in the risky portfolio?
2. What happens to the investment proportion if the expected return on the risky portfolio increases?
3. How does a higher risk aversion coefficient impact the proportion invested in the risky portfolio?
4. What are the implications of investing less than or more than the calculated proportion in the risky portfolio?
5. How does diversification affect the risk-return tradeoff in a complete portfolio?

**Tip:** Always re-evaluate your portfolio allocation periodically to ensure it aligns with your evolving risk tolerance and financial goals.

Explore how to determine the proportion of a complete portfolio that Investor X should invest in the risky portfolio given their risk aversion coefficient. This solution uses portfolio theory concepts, including expected rate of return, risk-free rate, and standard deviation. Learn the impact of changing these variables on portfolio allocation.

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