1. Suppose there is a mutual fund and each consumer buys a share in it for her endowment at t = 0. The mutual fund maximises the wealth of its shareholders when choosing IF, the investment in the long term technology. At t = 1, the mutual fund pays dividend d to each of its shareholders. At t = 1, the shares can be traded at price p². a. Set up the mutual fund's optimisation problem and derive and interpret the first order condition. What happens when R increases and why? b. What is the optimal consumption profile c, cand the optimal investment IF? c. Calculate (i.e. derive an expression for) d and p.
1. Suppose there is a mutual fund and each consumer buys a share in it for her endowment at t = 0. The mutual fund maximises the wealth of its shareholders when choosing IF, the investment in the long term technology. At t = 1, the mutual fund pays dividend d to each of its shareholders. At t = 1, the shares can be traded at price p². a. Set up the mutual fund's optimisation problem and derive and interpret the first order condition. What happens when R increases and why? b. What is the optimal consumption profile c, cand the optimal investment IF? c. Calculate (i.e. derive an expression for) d and p.
Essentials of Business Analytics (MindTap Course List)
2nd Edition
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Chapter15: Decision Analysis
Section: Chapter Questions
Problem 6P
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