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7) Suppose an individual has $100 to invest. Two assets are available. One asset will yield a return of 10%, while the other risky asset
7) Suppose an individual has $100 to invest. Two assets are available. One asset will yield a return of 10%, while the other risky asset will yield 0% with probability 0.5 and 21% with probability 0.5. Suppose the investor's utility function is given by U(x) = ln(x) where x is the wealth after investing (assume she is investing for just one period). How much will she invest in the risky asset? Hint: Suppose that s represents investment in the risky asset. This means the individual invests 100-s in the safe asset. Find the value of s that maximizes the expected utility of the investor
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