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Question 10 A totrep investor has wealth 400,000 if the economy does well and wealth 300,000 if the economy does poorly. She considers investing in
Question 10 A totrep investor has wealth 400,000 if the economy does well and wealth 300,000 if the economy does poorly. She considers investing in shares of a company that returns 200,000 if the economy does well and 0 if the economy does poorly. The price of an -share of the company is 80,000. Therefore, if she buys an [0,1] share, she has wealth 400,000+(200,00080,000) if the economy does well and 300,00080,000 if the economy does poorly. The economy does well with probability 0.5, and the investor is an expected utility maximizer with utility index u(x)=ln(x) (a) What is the investor's optima ? (b) What is the maximal share price at which the investor is willing to invest in the company? Question 10 A totrep investor has wealth 400,000 if the economy does well and wealth 300,000 if the economy does poorly. She considers investing in shares of a company that returns 200,000 if the economy does well and 0 if the economy does poorly. The price of an -share of the company is 80,000. Therefore, if she buys an [0,1] share, she has wealth 400,000+(200,00080,000) if the economy does well and 300,00080,000 if the economy does poorly. The economy does well with probability 0.5, and the investor is an expected utility maximizer with utility index u(x)=ln(x) (a) What is the investor's optima ? (b) What is the maximal share price at which the investor is willing to invest in the company
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