Question
Amy has a wealth $X to invest. She can buy shares of a beach resort in Maldives which for one dollar investment pays $3 if
Amy has a wealth $X to invest. She can buy shares of a beach resort in Maldives which for one dollar investment pays $3 if year is hot and pays $0 if year is cold. She can buy shares of a ski resort in France which for one dollar investment pays $4 if the year is cold and pays -$1 (i.e., looses $2 for each $1 investment) if the year is hot. The probability that the year will be cold is 0.5. Her vNM utility function is u(x) = x^1/2 where x is his realized final wealth. Suppose that Amy invests a fraction of his wealth in the beach resort and 1 in the ski resort. Formulate (you don't need to solve for anything)
(a) Amy's expected return,
(b) Amy's expected utility.
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