User Account

All Pages

Inflation expectations, Business Economics

Assignment Help:
An individual holds B_0 dollars in a saving accountant at t=0 and earns continuously compounded interest at a nominal rate r. Therefore, the nominal value of his savings at time t is given B_t=e^rt. To find out the real value of his savings at each moment in time, we must divide by the price level. Assume the price level follows a geometric Brownian motion:
dP=pPdt+sPdz
where p is the expected rate of inflation and s is its volatility parameter
Let B_t/P_t be the real value of savings. Derive the law of motion for b using Ito’s Lemma. (Hint: you should obtain a law db=f (b)dt+ g(b)dz, where f and g are functions og just b for you to derive)
What is the individual’s expected real rate of return on his savings?
Calculate the expected real value of the individual’s savings at time t from the point of view of t=0, i.e E_¦(0@)[b_t]

Related Discussions:- Inflation expectations

What is success effectiveness of multi-national companies, What is the succ...

What is the success effectiveness of multi-national companies (transnationals) in the promotion of development? TNC FDI success into promoting development: • Introduces mode

Law of production, explain law of production

explain law of production

How do economists differ from accountants, How do economists differ from ac...

How do economists differ from accountants in the use of the term profit ? Definition of rev and accounting costs Explanation/outline of opportunity costs, for example

Draw a supply or demand diagram, Draw a Supply or Demand Diagram A) Supp...

Draw a Supply or Demand Diagram A) Suppose that several months of data showed the CPI increasing at a 4.5% annual rate due  largely to increases in the price of energy and food

Influence of warranty and political pressure in is project, Explain about t...

Explain about the influence of warranty and political pressure in IS project. Warranty: When a system is being developed under contract, this frequently carries a warranty

Explain the term balance of payments, QUESTION 1) Explain the term Bala...

QUESTION 1) Explain the term Balance of Payments (BOP) and how a government would intervene to correct a BOP deficit. 2) Explain the protectionist measures that a government

Utility theories, critically evaluate the two main utility theories

critically evaluate the two main utility theories

Differentiate between returns to factor and returns to scale, QUESTION ...

QUESTION a) Differentiate between returns to factor and returns to scale. b) In the long-run the Average Cost Curve is u-shaped. Discuss c) Whenever a firm is making loss

Economic theory, How does economic theory contributes to managerial decisio...

How does economic theory contributes to managerial decisions?

How is the informal sector, How is the informal sector, urban modern sector...

How is the informal sector, urban modern sectors connected? Several urban regions into developing countries are dualistic as: current formal activity exists side by side along

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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