Tommy has vNM utility over final wealth u(x) = in(x). He has $100 and is deciding how much to put into a savings account and how much to use to purchase Dogrycoin. Each asset has the following expected returns:
• Asset 1 (Savings Account): 0% return with probability 1 (i.e., $1 becomes $1 • Asset 2 (Robinhood Account): -36% return with probability .5 and 72% return with probability .5 (i.e., $1 becomes either $0.64 or $1.72)
a) If Tommy puts proportion 0 into the savings account, what is his expected wealth? b) If Tommy puts proportion 8 into the savings account, what is his expected talky? c) What value of H maximizes Tommy’s expected utility?
