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- H3. An investor with an initial endowment of $ 16,000 is confronted with the following productivity curve: C1= 240 (16,000 − C0)0.5 where C0 denotes consumption at present, and C1 consumption in the future. Assume the interest rate (for borrowing and lending) is 20%. The investor's utility function, from which it is possible to derive his indifference curves, is defined as: U(C0, C1) =C0C1 . What is the NPV of the investment chosen by the investor? Show proper step by step calculationkal.4 An investor with an initial endowment of $ 16,000 is confronted with the following productivity curve: C1= 240 (16,000 − C0)0.5 where C0 denotes consumption at present, and C1 consumption in the future. Assume the interest rate (for borrowing and lending) is 20%. The investor's utility function, from which it is possible to derive his indifference curves, is defined as: U(C0, C1) =C0C1 . What is the NPV of the investment chosen by the investor?Indicate whether the statement is true or false, and justify your answer. 1. The internal rate of return is defined as the interest rate that makes the net present value of an investment stream exactly equal to zero. 2. In part, physicians’ salaries are higher than secretaries’ salaries because it takes more years to train to become a physician than it does to become a secretary. 3. The fact that practicing surgeons who have finished residency earn more than practicing pediatricians implies that the rate of return to choosing surgery exceeds the rate of return to choosing pediatrics for a medical school graduate.
- What is the formula for calculating Net Present Value (NPV)? a) NPV = Total Revenue - Total Costs b) NPV = Total Costs - Total Benefits c) NPV = Initial Investment - Total Revenue d) NPV = Total Benefits - Initial InvestmentSuppose Eric would like to use $6,000 of his savings to make a financial investment. One way of making a financial investment is to purchase stock or bonds from a private company. Suppose TouchTech, a hand-held computing firm, is selling bonds to raise money for a new lab—a practice known as (a. equity, b. debt) finance. Buying a bond issued by TouchTech would give Eric (a. a claim to partial ownership in, b. an IOU, or promise to pay, from) the firm. In the event that TouchTech runs into financial difficulty, (a. Eric and the other bondholders, b. the stockholders) will be paid first. Suppose instead Eric decides to buy 100 shares of TouchTech stock. Which of the following statements are correct? Check all that apply. a.TouchTech earns revenue when Eric purchases 100 shares, even if he purchases them from an existing shareholder. b. The Dow Jones Industrial Average is an example of a stock exchange where he can purchase TouchTech stock. c. An increase in the…8, Q4) Hey, need help with the following multi-part macroeconomics problem. Thank you in advance! In this problem, consider a simple mutual fund. Households and businesses invest in the fund by buying shares; the fund uses this money, in turn, to invest in a range of assets, including equities and bonds. If an investor wishes to divest from the fund, she can “redeem” her shares. Redeeming involves selling the shares back to the mutual fund for a price called the “net asset value” (NAV). The NAV is equal to the difference between assets and liabilities, divided by the total number of investors in the fund (similar to the shareholders’ equity discussed in this chapter). The NAV is updated at the end of each day. Thus every investor who redeems on a given day will get the same price. What does this fund’s balance sheet look like? Suppose several large investors in the mutual fund start getting nervous about market conditions and decide to redeem, all on the same day. How will these…
- Discuss the concept of duality in economics, where concepts like risk and return represent dual aspects of investment decisions. Provide examples from financial markets.Problem 1. Consider the plight of Bonget, a middle-aged professor facing retirement soon. Suppose that the present value of Bonget's consumption is equal to financial wealth plus the present value of income (a.k.a. human wealth). Suppose, too, that Bonget derives utility from consumption using the log utility from where 3 = 1. Suppose that the real interest rate is 5%; initial financial assets f = P50,000, y = P100, 000 (working age) and y'= P10,000 (retirement age). Assume that taxes are zero. A. B. C. D. E. What is this person's human wealth and total wealth? According to the neoclassical consumption model, how much does this person consume today and in the future? How much does she save today? If her current labor income y were to increase by P20,000, how much will saving change? If her future labor income were to increase by P10,000, how much will con- sumption today (c) rise? Using initial conditions, what if the interest rate rises to 10%? By how much will total wealth and…Indicate which one of following statements is true for a coupon bond: A) When the price of a bond is above its par value, the yield to maturity is greater than the coupon rate. B) The yield to maturity and the price of a coupon bond are positively related. C) When the price of a coupon bond equals its face value, the yield to maturity equals the coupon rate. D) When the price of a bond is below its par value, the yield to maturity is less than the coupon rate Support your answer with the use of a formula and explain in detail all the assumptions you make and all the components you use. (You may also want to use a yield calculator to verify you answer).
- 2. An individual has an intertemporal utility function that is rational, monotonic, and strictly convex. She can borrow/lend at the interest rate, r, but does not have access to human capital. She is currently consuming a bundle such that MRSx₁x2 >1+r. How many of the following statements COULD BE true? [HINT: try drawing a picture] 0 X1x2 The bundle is optimal (i.e. maximizes her utility). If the individual is consuming both goods, she could do better by consuming less today and consuming more tomorrow. She is at a corner solution in which she only consumes tomorrow. a. 1 b. 2 c. 3 V. d. None of the above statements could be true.Indicate whether the statement is true or false, and justify your answer.The internal rate of return is defined as the interest rate that makes the net present value of an investment stream exactly equal to zero.An investor with an initial endowment of $ 16,000 is confronted with the following productivity curve: C1= 240 (16,000 - C0)^0.5 where C0 denotes consumption at present, and C1 consumption in the future. Assume the interest rate (for borrowing and lending) is 20%. The investor's utility function, from which it is possible to derive his indifference curves, is defined as: U(C0,C1) =C0C1 How much will the investor invest in production? A)$16,000 B)$0 C)$10,000 D)$12,000
