Consider the following portfolio choice problem. The investor has initial wealth w and utilityu(x)=xn/n . There is a safe asset (such as a US government bond) that has net real return of zero. There is also a risky asset with a random net return that has only two possible returns, R₁ with probability 1 q and R₀ with probability q. We assume R₁ < 0, R₀ > 0. Let A be the amount invested in the risky asset, so that w A is invested in the safe asset.

1. Find A as a function of w.

2. Does the investor put more or less of his portfolio into the risky asset as his wealth increases?