Exercise 2. Suppose that there is one risk free asset with return r, and one risky asset with normally distributed returns, N(21,02). Show that the CARA utility u(r) = -e-Ar gives the same optimal allocation of wealth to the risky asset for an expected utility maximizer as the mean-variance utility function we used in class. That is, show that E[r] - my 2. ACARA = Show all your work. Hint: Use the fact that if a random variable x is distributed normally with mean Mhz and variance o?, then Ee42) = 4x+fa?o? Exercise 2. Suppose that there is one risk free asset with return r, and one risky asset with normally distributed returns, N(21,02). Show that the CARA utility u(r) = -e-Ar gives the same optimal allocation of wealth to the risky asset for an expected utility maximizer as the mean-variance utility function we used in class. That is, show that E[r] - my 2. ACARA = Show all your work. Hint: Use the fact that if a random variable x is distributed normally with mean Mhz and variance o?, then Ee42) = 4x+fa?o