D Question 7 15 pts An investor lives for 2 periods and has the utility function...
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D Question 7 15 pts An investor lives for 2 periods and has the utility function u defined over the final wealth as u (w) = y + B (YE (w)-2V (w)). The investor is born at r = 0 with wealth wo 2 and wants to choose a portfolio which maximizes her final wealth w, which you will recognize is a random variable. There are two assets that the investor can invest in - (i) a bond which pays a sure return 0.03, and (ii) a stock which follows a Normal distribution N (0.02, 0.08). The investor must also eat at time / = 0, and her consumption is co. The discount rate is given by = 0.804, and her risk aversion is given by y = 3.8. Find her optimal consumption which maximizes her utility. D Question 7 15 pts An investor lives for 2 periods and has the utility function u defined over the final wealth as u (w) = y + B (YE (w)-2V (w)). The investor is born at r = 0 with wealth wo 2 and wants to choose a portfolio which maximizes her final wealth w, which you will recognize is a random variable. There are two assets that the investor can invest in - (i) a bond which pays a sure return 0.03, and (ii) a stock which follows a Normal distribution N (0.02, 0.08). The investor must also eat at time / = 0, and her consumption is co. The discount rate is given by = 0.804, and her risk aversion is given by y = 3.8. Find her optimal consumption which maximizes her utility.
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