Mean_Varaince Investment

Consider the same situation as Q8 (i.e., _A = 5%). Now, the exchange platform charges an ex-ante participation fee F, and you must pay F before you start investing in stock A (F is not applied to the risk-free saving). Once this fee is paid, you pay no additional fees. If F = 0.02 and if you try to maximize your ex-ante utility, it is optimal to

(Hint: your decision making involves two steps. First, you decide whether to participate in the market by comparing U F (the maximized utility, net of the fee, conditional on your participation) and r_f (your utility from not participating in the market). Second, you optimally invest if you have decided to participate in the first stage.)

Group of answer choices

(a) Participate in the market by paying F and then invest x you derived in Q8

(b) Participate in the market by paying F but invest x that is different from x you derived in Q8

(c) Not participate in the market and put all your money in the risk-free saving

(d) Indifferent between (a) and (c)

(e) Indifferent between (b) and (c)