Consider an investor with logarithmic VNM utility and initial wealth W0. The investor chooses a portfolio at date 0 to maximize the expected utility of wealth at date 1 . There are two assets: a riskless asset with (gross) rate of return Rf and a risky asset with rate of return R~ that takes values R1 and R2(00, provided a is positive. Relate this finding to a property of the coefficient of absolute risk aversion that characterizes the logarithmic VNM utility function. (State the relevant result; do not prove it). 5. (5 points) Suppose R1 falls and R2 increases, keeping R constant. What happens to a ? Interpret. 6. (5 points) Calculate the certainty equivalent of the portfolio in which the agent invests all his initial wealth in the risky asset