8. Suppose that the world can be described using two states and two stocks Yand 2are available. We assume the stocks' future prices have the following distributionStateFuture Prices Stock YFuture Prices Stock Z$10$20$15$111The initial prices for the stocks are: Y(1) = $13, Z(1) = $10. Our utilityfunction in (w1, w2) space is U(w1, w2) = w1 X w2, where U represents theutility level. Now we have an initial endowment of $420. How many shares andwhat positions of Y and Z should we choose to build our portfolio so that weactually maximize our utility function? (Assume fractional shares are permitted.)%3DWhot oMO

We need to allocate $420 such that we are able to gain irrespective of future state...

8. Suppose that the world can be described using two states and two stocks Yand 2 are available. We assume the stocks' future prices have the following distributions State Future Prices Stock Y Future Prices Stock Z $15 $11 1 $10 $20 The initial prices for the stocks are: Y(1) $13, Z(1) = $10. Our utility function in (wl, w2) space is U(w1, w2) = w1 X w2, where U represents the utility level. Now we have an initial endowment of $420. How many shares and what positions of Y and Z should we choose to build our portfolio so that we actually maximize our utility function? (Assume fractional shares are permitted.) Whot

8. Suppose that the world can be described using two states and two stocks Yand 2 are available. We assume the stocks' future prices have the following distributions State Future Prices Stock Y Future Prices Stock Z $15 $11 1 $10 $20 The initial prices for the stocks are: Y(1) $13, Z(1) = $10. Our utility function in (wl, w2) space is U(w1, w2) = w1 X w2, where U represents the utility level. Now we have an initial endowment of $420. How many shares and what positions of Y and Z should we choose to build our portfolio so that we actually maximize our utility function? (Assume fractional shares are permitted.) Whot

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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3.