2. Let R and R be the i.i.d. random rates of return on two assets (with...

 

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2. Let R and R be the i.i.d. random rates of return on two assets (with positive expected values). Assume the agent has only two options: put all his wealth in one asset, or divide it among the two. (a) Show that a risk-averse agent (with u" <0) will always divide her wealth between the 2 assets. (b) Show that a risk-loving agent (with "> 0) will always invest only in one asset. 2. Let R and R be the i.i.d. random rates of return on two assets (with positive expected values). Assume the agent has only two options: put all his wealth in one asset, or divide it among the two. (a) Show that a risk-averse agent (with u" <0) will always divide her wealth between the 2 assets. (b) Show that a risk-loving agent (with "> 0) will always invest only in one asset.

Answer rating: 100% (QA)

a Show that a riskaverse agent with 0 will always divide her wealth between the 2 assets To show this lets first define some terms and concepts A risk... View the full answer