Suppose that two investors in the economy: A and B, whose initial wealth levels given by...

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Suppose that two investors in the economy: A and B, whose initial wealth levels given by w and w on day 0. There is a risk-free asset with return R' and there are N risky assets, whose returns are jointly normally distributed random variables with means --(6) E = UN and the full-rank variance-covariance matrix 0012 OIN 021 02N N= ON1 N2 Suppose investor i chooses his or her portfolio to maximize u (w)=-e', i = A or B, where w is the investor's wealth on day 1. a. Derive the demand function for these N risky assets. b. Prove CAPM. Suppose that two investors in the economy: A and B, whose initial wealth levels given by w and w on day 0. There is a risk-free asset with return R' and there are N risky assets, whose returns are jointly normally distributed random variables with means --(6) E = UN and the full-rank variance-covariance matrix 0012 OIN 021 02N N= ON1 N2 Suppose investor i chooses his or her portfolio to maximize u (w)=-e', i = A or B, where w is the investor's wealth on day 1. a. Derive the demand function for these N risky assets. b. Prove CAPM.

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