Consider the problem of an investor who starts with wealth w0. There are two assets available. A stockwithreturnsgivenby rs N(,2),andabondwithreturn rB. Theinvestorhasutilitygiven

by

U(x,w1)=log(x)+E(w1) V(w1) 2

where x is the total consumption now. Thus, she has to set aside an amount x for eating, and allocate the rest w0 x between stocks and bonds. Calculate the optimal consumption, and fraction allocated to stocks and bonds.