What amounts will the risk-averse individual invest in pure

Assignment Help Financial Management
Reference no: EM131247135

Suppose there are only two possible future states of the world, and the utility function is logarithmic. Let the probability of state 1, n,, equal 3, and the prices of the pure securities, p, and p2 , equal $0.60 and $0.40, respectively. An individual has an initial wealth or endowment, Wo, of $50,000.

a) What amounts will the risk-averse individual invest in pure securities 1 and 2?

b) How will the individual divide his or her initial endowment between current and future consumption?

Reference no: EM131247135

Previous Q& A

  Worst-case running time of an algorithm

Let T(n) be the worst-case running time of an algorithm on an input of size n. Define what it means for T(n) to be O(n2). Give an example of O(n2) algorithm.

  Prove that x and y are perfectly negatively correlated

Historically, the empirical distributions of stock prices on the NYSE have been skewed right. Why? Given the following relationship between x and y, y = a + bx, b . - prove that x and y are perfectly negatively correlated.

  Worst-case running time of an algorithm

Let T(n) be the worst-case running time of an algorithm on an input of size n. Define what it means for T(n) to be O(n2). Give an example of O(n2) algorithm.

  Understood that the cio should set

While it is understood that the CIO should set the example for the IT organization, determine the top three things that the head of IT should be doing to improve the skills of the IT staff.

  What can be done to keep quality data

Describe 3 characteristics of quality data that include the following: relevancy, granularity, consistency, accuracy, comprehensiveness, accessibility, timeliness, precision, and currency.

  Problem regarding the megatrends

Evaluate the megatrend of demographics in the IT field. Give your opinion as to why IT managers must understand this megatrend when selecting talent for organizational positions.

  Calculate and explain the change in the expected return

Calculate and explain the change in The expected return; -  The range of returns; - The semi interquartile range of returns.

  Describe the purpose of the database

Describe the purpose of the database. Based on your research and / or common knowledge of a college and the information tracked by a college, describe the entities of the database and the attributes of each entity.

  Derive the linear supply function that fits the supply data

ECO 314: Energy and the Environment Derive the linear function that fits the demand data and derive the linear supply function that fits the supply data - What is the equilibrium price and quantity of electricity?

  What are the racial minority categories in the united states

Explain the eight main forces that will determine future change in health care. In what way should the delivery infrastructure change to meet the needs of a larger number of insured Americans subsequent to health care reform?

Reviews

Write a Review

 

Similar Q& A

  Present value of a perpetuity making quarterly payments

A business borrows $296,926 for 9 years at an annual rate of interest of 6%. If payments are annual and the loan will negatively amortize by $49,469, what will be the annual payment required? What is the present value of a perpetuity making quarterly..

  What will be the suggested price per share

Assume that a share of stock will pay dividends of $2 in one year, $3 in two years, and $3.50 in three years. For all years after year 3, dividends will grow at a rate of 5%. If shareholders’ required rate of return is 15%, what will be the suggested..

  Real risk-free rate of interest-what is treasury securities

The real risk-free rate of interest is 4%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury s..

  Consider how economic conditions affect the default risk

consider how economic conditions affect the default risk premium. do you think the default risk premium will likely

  What is the effective annual rate of return

When a professor was working on his phd, he was being paid to do research. the university forced him to make monthly deposits to a retirement program. after finishing his phd 10 years ago, he stopped making the monthly deposits and completely forgot ..

  Describe process and reveal appropriate types of coverage

You have been an employee for the last ten years. Your employer had provided you with health insurance (coverage for just yourself), group term life insurance, and long-term disability coverage. Describe the process and reveal the appropriate types o..

  Holdings and reinvest the proceeds elsewhere

You own the stock of SageTech and its current price is $55.00/share. It pays no dividend today. Based on your own research, you expect SageTech to pay its first dividend of $3.80/share at the end of Years 1 and 2 (12 and 24 months from now).  In ligh..

  Company is thinking about investing in new project

A company is thinking about investing in a new project. The balance sheet reports that they currently have $36 million worth of long-term debt and $24 million worth of common equity. They also have 1.2 million shares of stock outstanding and the stoc..

  Company to increase its target debt ratio

Which of the following would be an incentive for a company to increase its target debt ratio? A. Corp tax rate increases. B. The personal tax rate increases. C. The company's operating leverage decreases. D. Inflation rate increases. E. The company's..

  Determine whether it is undervalued or overvalued

A manager believes his firm will earn an 18% return next year. His firm has a beta of 1.75, the expected return on the market is 13% and the risk free rate is 5%. Compute the return the firm should earn and determine whether it is undervalued or over..

  Calculate the after-tax cost of debt if an interest rate

Calculate the after-tax cost of debt if an interest rate is 14 percent and the tax rate is 22 percent.  Express your answer in percentage.

  Gain or loss will he recognize on the sale

Nigel received a Land Rover from his mother as a gift. Mom had purchased the Land Rover two years earlier for $65,000, but its fair market value at the date of the gift was only $50,000. No gift tax was paid by Mom at time of the gift.

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