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"Suppose you have $10,000 to invest. A broker phones you with some information you requested on certain junk bonds. If the company issuing the bonds posts a profit this year, it will pay you a 40 percent interest rate on the bond. If the company files for bankruptcy, you will lose all you invested. If the company breaks even, you will earn a 10 percent interest rate. Your broker tells you there is a 50 percent chance that they will break even and a 20 percent chance that the company will file for bankruptcy. Your other option is to invest in a risk-free government bond that will guarantee 8 percent interest for 1 year.
a. What is the expected interest rate for the junk bond investment?
b. Which investment will you choose if your utility function is given by U = (M2)?
c. Which investment will you choose if your utility function is given by U = (√M)?
Suppose that two consumers care only about the goods that they own. (The goods are private for them.) Starting from a competitive equilibrium allocation, is it possible for both consumers to be made simultaneously better off by trading with each othe..
Two incinerators are being considered by a waste management company. Design A has an initial cost of $2,625,000, has annual operating and maintenance costs of $950,000, and requires overhauls every 5 years at a cost of $1,650,000. Using a 8.0 %/year ..
can increase the natural rate of unemployment. Is this something that policymakers should be concerned with? Explain.
You put $20,000 on deposit on your 30th birthday at 5% compounded annually. On your 40th birthday, the account begins earning 6%. Then on your 50th birthday, it begins earning 7%. You plan to withdraw equal annual amounts on your 61st, 62nd, . . . , ..
What would happen to short- and long-run aggregate supply if unusually good weather let to bumper corps of most agricultural produce? What would keep wages from falling quickly in a recession?
Twenty years ago you took out a $200,000 loan. The details of the loan called for uniform payments to occur every month for thirty years. Interest rates have dropped significantly, and you have decided to refinance the loan. If the original loan inte..
The main tool that the federal reserve uses to conduct monetary policy is
If the world economy expands so that foreign demand for U.S.-made goods increases, in the short run Illustrate what will happen to aggregate demand, the price level, and real GDP in the U.S..
The market supply and demand functions for a product traded on a perfectly competitive market are given: QD= 40-P, QS = -5+4P, Based on this information, calculate the equilibrium price and quantity in this market. Now, suppose the competitive market..
Describe recent financial crises and describe the effect that destabilized credit, mortgage, derivative, and insurance markets have had on national economies and assess the stabilization policies implemented to address them. Compare and contrast two ..
shutdown point case average variable cost market price lt average total costnbspif the market price in the above
Which of the following might most closely represent a monopsonist? In a monopsonistic labor market, the marginal-factor-cost curve is
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