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.i In a year from now, there may he two states of the economy - good and had. Assume that the prohahility of good state
.i In a year from now, there may he two states of the economy - \"good\" and \"had." Assume that the prohahility of \"good\" state is 2,331 and the prohahility of \"had"1 state is 133. There are two investment opportunities: {i} risky asset will return you $1.37 in a year from now on each 31 you invest \"today"1 if the economy is in \"good\" state1 and $1.I.'il_. if the economy is in \"had\" state; {ii} safe asset will return you $1112 in a year from now on each $1 you invest \"today"1 in each state of the economy. You current wealth is w\" 3: ll. You are an expected utility maximizer~ and your utility of wealth is 11.ij : 1 e'n'm'". You want to invest your wealth in the optimal way. Suppose you invest the fraction (1 of your wealth in the risky asset~ and the fraction 1 o: in the sale asset. {a} What wealth will you have in a year from now in each state of the economy? {h} 1What will line your expected wealth? [c] What will be your expected utility of wealth? {d} Which (I will maximize your expected utility? [e] How does the optimal fraction o: of the wealth invested in the risky asset depend on your current wealth? [f] How does the optimal amount of money own invested in the risky asset depend on your current wealth
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