Should he take that opportunity

Assignment Help Business Economics
Reference no: EM131395458

Jay is an economics professor who's planning his future retirement. He knows that he lives for 2 periods and has $150 thousands in disposable income in period 1 and no wage income in period 2. He has quadratic utility U = 200c - 0.5c^2,where c is measured in thousands, and both ρ = r = 0. He is considering an investment opportunity- to purchase 1 thousand junk grade "C" Greece government debt zero-coupon bonds with a face value of $100 for only $50 each. The bonds mature at their face value in period 2. The problem is that there exists a 40% chance that Greece will default at the end of period 1, and thus he will lose his investment.

1. Should he take that opportunity?

2. For a price of $25 thousand dollars, ING offers Jay to insure his investment, which means that if Greece does default, ING will repay him his initial investment, which is $50 thousand. Should he purchase insurance?

Reference no: EM131395458

Housing possibilities after the housing prices fall

If I spent all my money ($450,000) on a new house I could buy a house with 4500 square feet. I settle for a 1500 square foot house. (Each square foot costs the same.) The day

How much of farmers sales will be included as apples in GDP

A farmer sells $25,000 worth of apples to individuals who take them home to eat, $50,000 worth of apples to a company that uses them all to produce cider, and $75,000 worth of

About an organization like the european union

In considering the international realm, let’s consider the concept of economic treaties. Specifically, let's think about an organization like the European Union (EU). Why was

Elucidate how this can be possible in spite of the fact

Elucidate how this can be possible, in spite of the fact that the exchange itself creates nothing new the goods being traded are still the same as they were before being tra

Apply the midpoints approach to the elasticity of supply

ADVANCED ANALYSIS Currently, at a price of $2 each, 200 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply. In the short run,

Earth orbit lead to commons problem

In the Tragedy of the Commons, Hardin argues that the absence of property rights leads to the over-exploitation of natural resources. Explain how might the ever-decreasing cos

Corn is often used ingredient in animal feed for livestock

In the United States, corn is often used as an ingredient in animal feed for livestock. Why does an increase in the use of corn to make ethanol, an additive that is used in ga

What is the growth rate of output per worker before change

In the Solow model with technological progress, consider an economy that begins in steady state with a rate of technological progress, g, of 2%. Suppose that g rises permanent

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd