Rollo Megabux has $1 million to invest in stocks or bonds. The percentage yield on each investment during the coming year depends on whether the economy has a good or a bad year (see Table).
|
|
Economy Has Good Year |
Economy Has Bad Year |
|
Yield on stocks |
22% |
10% |
|
Yield on bonds |
16% |
14% |
It is equally likely that the economy will have a good or a bad year.
Suppose Rollo cannot hire the consulting firm, and his utility function for ending cash position is u(x) = ln x. How much money should he invest in stocks and bonds?