# Risky Assets

Not what you're looking for?

Please see the attached file for full problem description.

---

Suppose that there is one safe and one risky asset and that the investor has initial wealth . Investing in the risky asset yields the total (principal plus interest) of x(1+r), where r is a random variable with density f(r), r where < 0 < . The safe asset pays zero interest. The investor's final random wealth is Assume that , i.e., that short sales and borrowing at the riskless rate of interest to invest in the risky asset are not allowed. The risk averse von Neumann-Morgenstern investor chooses x to maximize . Prove that if the investor's measure of absolute risk aversion is a decreasing function of w, the wealthier investor will hold more of the risky asset.

##### Purchase this Solution

##### Solution Summary

Risky Assets are assessed.

##### Purchase this Solution

##### Free BrainMass Quizzes

##### Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

##### Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

##### Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

##### Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

##### Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.