Suppose the world can be described in two states, and two stocks are available with future per share prices: State X Y 1 $10 $15 2 $20 $11 The current prices for stock X and Y are $13 and $10, respectively.

a) Suppose now you have saved $3900 to invest in stocks (X and Y), what is your investment strategy to maximize your total wealth when the future is in State 1?

b) Based on a), what is your investment strategy if you want to keep your future wealth as smooth as possible between the two States?