Every $1 Invested in Safe Sox Will Yield $2 for Sure

Every $1 invested in Safe Sox will yield $2 for sure. Each $1 invested in Wobbly Umbrellas will yield $8 with probability and $0 with probability . An investor has $10,000 to invest in these two companies and her von Neumann-Morgenstern utility function is the expected value of the natural logarithm of the total yield on her investments. If S is the amount of money that she invests in Safe Sox and $10,000 2 S is the amount that she invests in Wobbly Umbrellas, what should S be to maximize her expected utility? (Pick the closest answer.)

A) $1,111
B) $3,333
C) $5,000
D) $6,667
E) $9,111

Correct Answer:

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