Suppose a bank can offer an asset that is more liquid, with gross returns Rd1 = 1:33

and Rd2 = 1:71 (depending on the time of liquidation).

1. Calculate the expected return (from a t = 0 perspective) of depositing with this

bank. How does it compare to the expected return from direct investing?

2. Calculate the expected utility (from a t = 0 perspective) derived from depositing

with the bank. Do you conclude that people would prefer banking to direct

investing at t = 0?

3. Calculate the bank's profit after t = 2. In other words, what amount of funds

remains at the bank once all depositors have withdrawn?