Logarithmic utility function of wealth and initial wealth

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An investor with a logarithmic utility function of wealth and initial wealth of $100,000. Assume a two state world where the pure security prices are .40 (for security 1) and .70 (for security 2) and the corresponding state probabilities are .2 and .8. What is the optimal portfolio decision in terms of C (current consumption), Q1 (quantity of pure security 1), and Q2 (quantity of pure security 2). Is your answer feasible for this investor? Finally, what important implication can we make from our portfolio allocation decision?

Reference no: EM131852724

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