5 Portfolio Choice Asset 1 and asset 2 both cost $150. Yields on asset 1 in states 1 and 2 are (211> 212) = (100, 200) and on asset 2 are (Z21> Z22) = (200, 100). An individual with an initial wealth of $150 has a utility function: v(c) = -e- (A) Show that the state-contingent budget constraint can be expressed as: " + 6 = 300 (B) If the individual believes that state I will occur with probability , show that his optimal consumption in state 1 is: = 150 + = In(x/ (1 - x)) (C) If q, is the number of units of asset 1 purchased show that: C1 = 200 - 100q1 and hence obtain an expression for of in terms of a, the probability of state 1. (D) What values do of and of approach as the probability of state 1 becomes very small