Consider two investors that abide by the following utility function. Ui = iEi[r]/Aii2, where the subscript indicates investor i = 1, 2

1. (a)(2 points) Explain the motivation behind this utility specification. How does it con- form to the ideas of risk presented in class?
2. (b)(1 point) Explain the role of i.
3. (c)(1 point) Find an analytical expression for the level of expected return for investor 1
4. that makes these two investors equally satisfied with their portfolios.
5. (d)(2 points) Suppose that both investors hold the same assets. How can E1[r] not equal
6. E2[r]?