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1. Suppose that there are five states of nature denoted by Wn, n = 1,2,3,4,5, all of which are equi-probable. Consider two risky assets with

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1. Suppose that there are five states of nature denoted by Wn, n = 1,2,3,4,5, all of which are equi-probable. Consider two risky assets with payouts A and b given in the table. state WiW2 W3 W4 W5 v a oor B co (a) Explain which asset a risk averse investor will choose. (b) Does either asset state-by-state dominate, FOSD or SOSD the other? Provide evidence. (c) Does a riskless portfolio exist? If so, what is it? 1. Suppose that there are five states of nature denoted by Wn, n = 1,2,3,4,5, all of which are equi-probable. Consider two risky assets with payouts A and b given in the table. state WiW2 W3 W4 W5 v a oor B co (a) Explain which asset a risk averse investor will choose. (b) Does either asset state-by-state dominate, FOSD or SOSD the other? Provide evidence. (c) Does a riskless portfolio exist? If so, what is it

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