Solve all of 2 questions, thank you! Problem 4. Bob's risk preference is represented by the
following expected utility formula: U(,c1;1,c2)=c1+(1)c2 i.e., Bob is risk-neutral. Bob can invest
$100 into two stocks. Stock 1 returns $1 when the economy is good and returns 0 when the
economy is bad while Stock 2 returns $0 when the economy is good and returns $1 when the
economy is bad. The price of stock 1 is denoted by p1 and the price of stock 2 is p2=0.25.
Suppose the economy is good with probability 32 and is bad with probability 31. i) Write down
Bob's utility maximization problem. ii) Determine Bob's optimal investment bundle (c1,c2) as a
function of p1. Draw the inverse demand curve for stock 1 (i.e., c1 on X axis and p1 on Y axis).