Question: Consider Cara's two-period utility maximization problem. max u(Co) + 8E[U(C)] s.t. Co=W - EP C =W + EP (a) (10) Find the first order condition

Consider Cara's two-period utility maximization problem. max u(Co) + 8E[U(C)] s.t.

Consider Cara's two-period utility maximization problem. max u(Co) + 8E[U(C)] s.t. Co=W - EP C =W + EP (a) (10) Find the first order condition for Cara's optimization problem. (b) (10) Predictably, Cara's utility function exhibits constant absolute risk aversion (C)=1-e-a. Show that the number of shares she buys does not depend on her endowment W. (c) (10) Suppose that Cara has a twin sister, Cora, who faces the same optimization problem but whose utility function instead exhibits constant relative risk aversion (C) Show that the number of shares she buys is proportional to her endowment W. Consider Cara's two-period utility maximization problem. max u(Co) + 8E[U(C)] s.t. Co=W - EP C =W + EP (a) (10) Find the first order condition for Cara's optimization problem. (b) (10) Predictably, Cara's utility function exhibits constant absolute risk aversion (C)=1-e-a. Show that the number of shares she buys does not depend on her endowment W. (c) (10) Suppose that Cara has a twin sister, Cora, who faces the same optimization problem but whose utility function instead exhibits constant relative risk aversion (C) Show that the number of shares she buys is proportional to her endowment W

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