Hello all, Hope someone can help me with these: 1. Q 5.4, where is the rest that is invested in a non-interest bearing account in the expression 2. the solution to q5.15 has a diagram labelled as the range of the log utility function but isn't this showing the limit of the quadractic utility function? Misprint or something far more devious? Thanks in advance
In Q5.4, aw is invested in the risky asset and (1-a)w in the risk-free asset. At the end of one period, the investor could end up with [(0.96)aw +(1-a)w] with probability 0.25 or [(1.08)aw +(1-a)w] with probability 0.75. Gathering together the aw terms leads to the expression in the solution. In the solution to Q5.15, there is nothing more devious than a misprint - thanks for pointing it out!
