Tommy iv vNM utility over final wealth u(x) = in(x). lie has $100 and is decidutg how much to put into a savings account and how much to use to purchase Domcoln. Each assci has the following cpcctcd returns: • Asset I : 0
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i) Tommy iv vNM utility over final wealth u(x) = in(x). lie has $100 and is decidutg how much to put into a savings account and how much to use to purchase Domcoln. Each assci has the following cpcctcd returns:
• Asset I : 0% return with probability I
• Asset 2 : -36% return with probability .5 and 72% return with probability .5
a) If Tommy puts proportion B into the savings account, what is his expected wealth? b) If Tommy puts proportion 0 into the savings account, what is his expected utility?
c) What value of 6 maximizes Tommy’s expected utility?
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