Question: Exercise 12. Show that when U(x) = 1,2, the risk averse investor will only purchase stocks if the expected return on the stock is

Exercise 12. Show that when U(x) = 1,2, the risk averse investor

Exercise 12. Show that when U(x) = 1,2, the risk averse investor will only purchase stocks if the expected return on the stock is higher than the expected return on the bond. In other words, k, > 0 if and only if pu+qd>1+r.

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