4. Assume that a risk-free money market account is added to the market described in Q2. The continuously compounded rate of return on the money market account is 0% per period. (i) Use the method of Lagrange multipliers to determine the proportions of wealth invested in the three assets available for the minimum variance portfolio with expected return μ. Your answer must express the proportions as a function of μ. (ii) Recall that the market portfolio has highest Sharpe ratio. Formulate the optimi- sation problem which characterises the market portfolio. You don't have to solve this optimisation problem.
Q: Suppose that the The firm's margi When producing O Shut down Shut dow 000 Produce
A: Profit-maximizing output level: This refers to the quantity of output at which a firm achieves the…
Q: A common marketing tactic among many liquor stores is to offer their clientele quantity (or volume)…
A: This can be described as the concept that provides the graphical representation of the combination…
Q: If the market demand is given by Q = 20 - P and the marginal cost is constant at 8, what is the…
A: The objective of this question is to find the profit-maximizing monopoly price and output given the…
Q: Steven owns a woodworking business and specializes in making handcrafted cribs. He typically would…
A: This can be described as a concept that shows the contribution of an individual, organisation or any…
Q: International Trade - End of Chapter Problem The United States is highly protective of its…
A: The issue of trade protection for U.S. agricultural products is complex, with arguments on both…
Q: An individual sets aside a certain amount of his income per month to spend on his two hobbies,…
A: Demand refers to the quantity of a good or service that consumers are willing and able to purchase…
Q: If the marginal cost to make a good is $78 and the price elasticity of demand is -6, what price…
A: The markup rule is a rule that firms with some market power use to charge a price higher than the…
Q: Country X and Country Y have the same level of output per worker. They also have the same values for…
A: The Solow model, also known as the Solow growth model, is a neoclassical economic model developed by…
Q: Explain why we have seen a decrease in labor unions.
A: Trade unions, commonly referred to as labor unions, are associations of employees that band together…
Q: If a firm in monopoly maximizes revenue, does it automatically maximize profit too? Explain the…
A: Monopoly is a market with the "absence of competition", creating a situation where a specific…
Q: iscuss the possible substitution effect and the income effect of an increase in income on leisure…
A: In general, income often is considered as the amount of money that an individual or entity get as a…
Q: growth rate
A: The Solow growth model explains the long run growth rate of economy. The short run growth can be…
Q: A good's demand is given by: P =775 - 2Q. At P = 127, the point price elasticity is: Enter as a…
A: The demand function is given as The price is 127. The formula for point price elasticity is
Q: The figure shows graphs of the total cost function and the total revenue function for a commodity.…
A:
Q: Ecological economics emphasizes that: the economy is supported by unpaid care labor, which is mostly…
A: Ecological economics is a transdisciplinary field of study that integrates principles from ecology,…
Q: The following costs are for Optical View Incorporated, a contact lens manufacturer: Output in…
A: Total cost is the total cost of producting output. Total cost is the sum of total fixed cost and…
Q: Assume that the manufacturing cost of a company is $50,0000 and the general expenses is $50,000.…
A: The financial gain earned by an organization is referred to as profit. It is also the difference…
Q: Amy is looking into investing a portion of her recent bonus into the stock market. While researching…
A: The objective of the question is to determine which company would provide a more stable long-term…
Q: $ Dollars MR 0 b O Q Multiple Choice O Quantity Refer to the diagram for a non-collusive…
A: The firms that have a small quantity if suppliers in the market are referred to as oligopoly…
Q: Inverse demand in a market is given by p= 19 - 30 where p is the market price and Q is the quantity…
A: Deadweight loss is the loss of total surplus. This can occur when there is distortion in the market.…
Q: 1.1 Graphically demonstrate the Fisher separation theorem
A: The graph you sent me depicts the Fisher separation theorem for the case where an individual ends up…
Q: Refer to the below competitive market diagram for product Z. Assume that the current market demand…
A: This can be defined as a concept that shows the total demand for the products and services in a…
Q: Create three diagrams for the aggregate expenditures (AE) model for a public closed economy by…
A: The Aggregate Expenditures (AE) model is a key concept in macroeconomics that depicts the overall…
Q: A company that produces healthcare services (patient visits) operates with the following production…
A: Production function : q = L0.5 K0.25Price of K = rPrice of L = w Cost constraint : C = wL + rK
Q: The table shows Elaine's total utility from pizza and hamburgers. Elaine spends $10 a week on pizza…
A: A consumer will consume that bundle where the law of equi marginal utility is satisfied. The law of…
Q: Consider an industry with two firms producing similar products. Each firm's total cost (in dollars)…
A: Average total cost (ATC) is a measure used in economics and business to determine the average cost…
Q: aaaaaa A soft drink machine outputs a mean of 27 ounces per cup. The machine's output is normally…
A: The objective of the question is to find the probability of the soft drink machine filling a cup…
Q: Which tax level generates the most revenue? The $2 per jar tax generates the most revenue. The $8…
A: Demand measures the willingness and the ability of the individual to pay for the commodity. The…
Q: The production possibilities frontiers in the figure to the right show how many bananas and coconuts…
A: Opportunity cost is the amount of one good that is given up in order to produce one more unit of…
Q: Policy Decisions In 2022, 670,000 electric vehicles (EVS) were sold in the United States.…
A: Elasticity of demand measures the responsiveness of the quantity demanded of a good or service to a…
Q: competitive market
A: Maximize: Subject to:Period 1 Budget Constraint: w*l + π - T - C ≤ (1+r)BPeriod 2 Budget Constraint:…
Q: Give an example of a price ceiling and an example of a price floor. Which causes a shortage of a…
A: Price ceiling is the maximum price paid by the consumer. The government sets the price below the…
Q: (Figure: Competitive Equilibrium in the Labor Market) Use Figure: Competitive Equilibrium in the…
A: When profit-maximizing producers and utility-maximizing consumers agree on a price that works for…
Q: Suppose that the US firm Halliburton buys construction equipment from the Japanese fim Komatsu at a…
A: The exchange rate affects the inflation rate of an economy. A higher exchange rate defines the…
Q: Part 1: True/False/Explain. For each question, follow these steps. First, define or explain…
A: Lewis in his model states that migrates surplus agricultural workers to the capitalist sector to…
Q: If the banking system has a large amount of excess reserves, which action would the Federal Reserve…
A: The Fed Open Market Committee is the fed monetary policy-making body and controls the economy MS…
Q: Written Questions 1. Analyze the scenario for each market. The scenario will create a change in the…
A: Market equilibrium refers to a state in a market where the quantity demanded for a good or service…
Q: 10. Calculate the unrecovered investment balance at the end of each year for the following: 2 3 4…
A: Unrecovered investment balance refers to the remaining amount of an initial investment that has not…
Q: $3.00 2.50 1.75 0.50 0 12 18 26 38 45 World price (P U.S. Demand Quantity of coffee (millions of…
A: Tariffs are taxes(T) imposed by a government on imported goods. They protect domestic industries by…
Q: Explain how to solve According to CFR, s timeline, when did China become the world's second largest…
A: The Council on Foreign Relations (CFR) provides insights into the timeline of China's economic…
Q: Nash equilibrium
A: Since the question you have posted consists of multiple parts, we will answer the first two parts…
Q: Which of the following statements about the role of multilateral development banks in global health…
A: Multilateral development banks fund projects and provide financial assistance to member nations to…
Q: Refer to the table. Over the $25-$30 price range, the elasticity coefficient of supply is Quantity…
A: The elasticity of supply indicates the responsiveness to the change in the price and measures the…
Q: On the following graph, the black line shows potential real GDP and the blue line shows actual real…
A: Full employment is the economic state of using all the resources available in the market. It…
Q: . Economy ABC produces only two products: coffee and chocolate. Year Coffee Produced Price of Coffee…
A: After taking price fluctuations into account, a nation's real GDP is the total quantity of its…
Q: Assuming that there is no government spending or trade, an economy’s GDP is the sum of domestic…
A: The aggregate demand refers to the total demand for all goods and services produced in an economy in…
Q: only tiped solution
A: The objective of the question is to understand the impact of price change on Kim's consumption of…
Q: Price Quantity $25 0 $20 4 $15 8 $10 12 $5 16 $0 20 Refer to the Table. Using the midpoint method,…
A: The price and quantity is given as follows. Price Quantity$250$204$158$1012$516$020
Q: Consider two firms with the following marginal abatement cost (MAC) functions: MAC₁ = 12 - 2E₁ MAC2…
A: This can be described as a concept that shows the contribution of an individual, organisation or any…
Q: Ecological economics emphasizes that: the economy is supported by unpaid care labor, which is mostly…
A: The goal of the interdisciplinary discipline of ecological economics is to comprehend the…
just answer question4,please
Step by step
Solved in 4 steps with 1 images
- An aggressive investment in Industry 4.0 next-generation technology has the potential to save your company $7M if it is very successful, or $3M if it is moderately successful, but it will cost $2M if it fails. The relative risk for the project is $1.25M. The company has a risk tolerance of $1 million and has assigned a utility value of .777 based on an exponential utility function for this investment. What is the value of a safe investment that the company would just as soon choose rather than investing in the IT project? A. $2M B. $1.5M C. 52.75 D. $1.25MYou are an investment analyst for De Caul’s Investments Inc., an independent financial consulting firm. Your latest assignment is to provide an independent assessment of RBL. RBL is a Caribbean-based company that manufactures building products and provides services for the construction and engineering sectors. The company has several divisions which operate as separate entities. The case study analysis consists of a core section, The Markowitz Portfolio Theory and you will have to either conduct research or perform calculations. The assessment must be completed within five days because a meeting has been scheduled with the client to discuss your findings. Saving cash in the bank is not as attractive as it was in the past, and RBL is looking to invest some of its surplus cash. In a meeting with senior managers in the company, you mention the Modern Portfolio Theory which was pioneered by Markowitz. Required: Explain to the senior manager, The purpose of the Markowitz Portfolio…Buying and selling prices for risky investments obviously are related to certain equivalents. This problem, however, shows that the prices depend on exactly what is owned in the first place. Suppose that your utility for wealth (A) can be represented by the utility function u(A) = In [(A)] You currently have R1000 in cash. A business deal of interest to you yields a reward of R100 with probability 0,5 and RO with probability 0,5. 2.1 If you own this business deal in addition to the R1000, what is the smallest amount for which you would sell the deal? 2.2 Suppose you do not own the deal. Formulate an appropriate equation and solve with algebra to find the largest amount you would be willing to pay for the deal. 2.3 Explain why the amounts in 2.1 and 2.2 are slightly different.
- 8. Risk and return Suppose Frances is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. Combination A B с D E Fraction of Portfolio in Diversified Stocks (Percent) 0 25 50 75 100 Average Annual Return (Percent) 2.00 4.50 7.00 9.50 12.00 As the risk of Frances's portfolio increases, the average annual return on her portfolio Standard Deviation of Portfolio Return (Risk) (Percent) 0 Accept more risk Sell some of her bonds and use the proceeds to purchase stocks Sell some of her stocks and place the proceeds in a savings account Sell some of her stocks and use the proceeds to purchase bonds 5 10 15 20 Suppose Frances currently allocates 25% of her portfolio to a diversified group of stocks and 75% of her portfolio to risk-free bonds; that is, she chooses combination B. She wants to increase the average…Elizabeth has decided to form a portfolio by putting 30% of her money into stock 1 and 70% into stock 2. She assumes that the expected returns will be 10% and 18%, respectively, and that the standard deviations will be 15% and 24%, respectively. Describe what happens to the standard deviation of the portfolio returns when the coefficient of correlation ρ decreases. The standard deviation of the portfolio returns decreases as the coefficient of correlation decreases. The standard deviation of the portfolio returns increases as the coefficient of correlation increases. The standard deviation of the portfolio returns decreases as the coefficient of correlation increases. The standard deviation of the portfolio returns increases as the coefficient of correlation decreases.You plan to invest $1,000 in a corporate bond fund or in a common stock fund. The following table represents the annual return (per $1,000) of each of these investments under various economic conditions and the probability that each of those economic conditions will occur. Compute the expected return for the corporate bond and for the common stock fund. Show your calculations on excel for expected returns. Compute the standard deviation for the corporate bond fund and for the common stock fund. Would you invest in the corporate bond fund or the common stock fund? Explain. If choose to invest in the common stock fund and in (c), what do you think about the possibility of losing $999 of every $1,000 invested if there is depression. Explain.
- John Davidson is an investment adviser at Leeds Asset Management plc. He is asked by a client to evaluate various investment opportunities currently available and he has calculated expected returns and standard deviations for five different well-diversified portfolios of risky assets: Portfolio Expected return Standard deviation Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T 11.7% 18.5% U 6.2% 7.5% (a) For each portfolio, calculate the risk premium per unit of risk (Sharpe ratio) that you expect to receive. Assume that the risk-free rate is 3.0%. (b) If you are only willing to make an investment with a standard deviation of 7.0%, is it possible for you to earn a return of 7.0%? (c) What is the minimum level of risk that would be necessary for an investment to earn 7.0%? What is the composition of the portfolio along the Capital Market Line (CML) that will generate that expected return?You observe the E[IBM] = 8%, E[AAPL] = 12%, B(AAPL)=B(IBM)+2/3, Risk-free rate is 4%. What is the expected return on the market portfolio assuming the CAPM is true.Two stocks are available. The corresponding expectedrates of return are r¯1 and r¯2; the corresponding variances and covariances areσ12, σ22, and σ12. What percentages of total investment should be invested ineach of the two stocks to minimize the total variance of the rate of return ofthe resulting portfolio? What is the mean rate of return of this portfolio?
- You are considering a $500,000 investment in the fast-food industry and have narrowed your choice to either a McDonald's or a Penn Station East Coast Subs franchise. McDonald's indicates that, based on the location where you are proposing to open a new restaurant, there is a 25 percent probability that aggregate 10-year profits (net of the initial investment) will be $16 million, a 50 percent probability that profits will be $8 million, and a 25 percent probability that profits will be -$1.6 million. The aggregate 10-year profit projections (net of the initial investment) for a Penn Station East Coast Subs franchise is $48 million with a 2.5 percent probability, $8 million with a 95 percent probability, and -$48 million with a 2.5 percent probability. Considering both the risk and expected profitability of these two investment opportunities, which is the better investment? Explain carefully.A Real estate investor has the opportunity to purchase a small apartment complex. The apartment complex costs $4 million and is expected to generate net revenue (that after all operating and finance costs) of $60,000 per month. Course, the revenue can vary because the occupancy rate is uncertain. Considering the uncertainty, the revenue could vary from a low -$10,000 To a high of $100,000 per month. Assume that the investors objective is to maximize the value of the investment in the 10 years. The city Council is currently considering an application to rezone a nearby empty parcel of land. The owner of that land wants to build a small electronics assembly plant. Was plant does not really conflict with the city’s overall land use plan, but it may have a substantial long-term negative effect on the value the nearby residential district in which the apartment complex is located. Because the city Council currently is divided on the issue and will not make a decision until next month, the…A maximizing investor with preferences u(u, o) = 0.2u – 0.50^2 will allocate a portfolio worth 4000 between a risk free asset with a return of 4 percent and the market asset with a return of 20 percent and risk of 4 percent. How many dollars should be invested in the market asset? %3D