An asset is divisible claim to a financial return in the future.

Suppose that there are two assets, a

safe asset with a return of 1 dollar per dollar invested and a risky asset with a random return of Z
dollar per dollar invested the random return z has a distribution F(z) that we assume that its
expected return exceeds that of the safe asset (ie. Integration zdF(z)> 1)

Consider a strictly risk reverse decision maker, Mary who has an initial wealth wf to invest the
two assets. Let ∝𝑓 denote the fraction of wealth invested on the risky asset. Her utility of wealth
can be represented by a bernoulii utility function u (x) .

1) write down her expected utility maximization problem and find the 1st order conditions.
2) show that her invests a positive fraction of her wealth on the risky asset, equivalently ∝𝑓∗ ≠0.