What is the optimal value of x of an utility function

Reference no: EM13198445

Suppose there is a risky stock which returns $4 with probability 0.5 and 0 with probability 0.5 for every dollar invested. Suppose for every dollar, I invest a share x in A and (1-x) in risk free government bonds, which give no extra return (think of them as stocks that give $1 for sure for each dollar invested). x must be a number between zero and 1.

a. What is the optimal value of x if my utility function is U (W ) =logW ?

b. What is the optimal value of x if my utility function is U (W ) = 0.5992W +3.54 ? (Assume that x must lie between 0 and 1.)

Reference no: EM13198445

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