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Business, 24.06.2021 16:10 kenz391

Exercise 1. Suppose there are only two possible states of the world that could occur with equal probability. There are two assets (both risky). In the first state, asset 1 pays out $5 and asset 2 pays out $2. In the second state, asset 1 pays out $2 and asset 2 pays out $4. The investor is an expected utility maximizer with a log utility function. Solve for the optimal allocation of wealth to each asset.

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Exercise 1. Suppose there are only two possible states of the world that could occur with equal prob...

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