Investor A has a square root utility function (i.e.,U(W) =

logarithmic utility function (i.e.,U(W) = lnW). Both investors have initial wealthW0= $1,000 and must decide how much how much to invest in a bond and how much to invest in a stock. The current (t= 0) prices of the bond and stock areB0andS0respectively. Both investors expect to receive income from selling these securities at theirt= 1 prices, which areB1for the bond andS1for the stock. Since the bond is riskless, itst= 1 price is known with certainty to beB1=B0(1+r), whereris the riskless rate of interest. The price of the stock att= 1 can be high or low; i.e., it will beS0(1+s) with probability .6 and it will beS0(1-s) with probability .4. Furthermore, assumethatr=.03ands=.3.

1. How much (in dollars and percentages) of Investor A's initial wealth should be invested in the stock and in the bond?