If Tommy puts proportion B into the savings account, what is his expected wealth? If Tommy puts proportion 0 into the savings account, what is his expected utility?

DISCUSSION QUESTION

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 c\pcctcd 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?