Question 2 An individual has a utility function described by U(Y) = In(Y). There exists a risky asset that is forecasted to pay either of two returns r2 >r with probabilities n and 1-nt respectively. Let us assume that r2 > >r, and that Ef) = nr2 + (1 - Tr > The individual invests the amount a out of his initial wealth Yo in the risky asset. Write down the expected utility to be maximized by the individual investor. Write down the first order condition solved by the optimal amount invested in the risky asset. Rewrite the FOC such that An individual has a utility function described by U(Y) = In(Y). There exists a risky asset that is forecasted to pay either of two returns r2 >r with probabilities i and 1-rt respectively. Let us assume that 72 >ry >r and that E(F) = nr2 + (1 - i)ri > The individual invests the amount a out of his initial wealth Yo in the risky asset. Write down the expected utility to be maximized by the individual investor. Write down the first order condition solved by the optimal amount invested in the risky asset. Rewrite the FOC such that Question 2 An individual has a utility function described by U(Y) = In(Y). There exists a risky asset that is forecasted to pay either of two returns r2 >r with probabilities n and 1-nt respectively. Let us assume that r2 > >r, and that Ef) = nr2 + (1 - Tr > The individual invests the amount a out of his initial wealth Yo in the risky asset. Write down the expected utility to be maximized by the individual investor. Write down the first order condition solved by the optimal amount invested in the risky asset. Rewrite the FOC such that An individual has a utility function described by U(Y) = In(Y). There exists a risky asset that is forecasted to pay either of two returns r2 >r with probabilities i and 1-rt respectively. Let us assume that 72 >ry >r and that E(F) = nr2 + (1 - i)ri > The individual invests the amount a out of his initial wealth Yo in the risky asset. Write down the expected utility to be maximized by the individual investor. Write down the first order condition solved by the optimal amount invested in the risky asset. Rewrite the FOC such that