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- Related to the Economics in Practice on p. 202: If the estate in the Chekhov play Uncle Vanya is earning 2 percent, the interest rate in suitable securities is 5 percent, and the estate is a better risk than the securities, Select one: O a. more information is needed to determine which is the better investment. O b. the estate will not sell because the return is lower. the securities will not sell because the risk is higher. O d. the buyer would have no preference between the two investments.Facing the question of whether to buy and hold an asset or whether to buy one asset rather than another, which of the following factors must be considered by an individual investor? A Investor's wealth. B Expected return on one asset relative to alternative assets. C Risk of one asset relative to alternative assets. D All of the above must be considered. Which of the following is correct about the expected return on a particular asset? Question 6 options: A If the asset's beta is 1.0, then the expected return on that asset is equal to the risk-free rate of return. B If the asset's beta is zero, then the expected return on that asset is greater than the risk-free rate of return. C If the asset's beta is zero, then the expected return on that asset is equal to the risk-free rate of return. D If the asset's beta is greater than 1.0, then the…A life insurance policy is a financial asset, with the premiums paid representing the investment’scost.a. How would you calculate the expected return on a 1-year life insurance policy?b. Suppose the owner of a life insurance policy has no other financial assets—the person’sonly other asset is “human capital,” or earnings capacity. What is the correlation coefficientbetween the return on the insurance policy and the return on the human capital?c. Life insurance companies must pay administrative costs and sales representatives’commissions; hence, the expected rate of return on insurance premiums is generallylow or even negative. Use portfolio concepts to explain why people buy life insurancein spite of low expected returns.
- My options are A) 16,000 gain B) 29,000 loss C) 24,000 gain D) 101,000 loss and A is not the ans for sure.The current income is ? The investor would experience a Gain, Loss, or Neither? The total return on this investment is $?Consider an individual facing the prospect of having high income, YH > 0, with probability 7 and low income, YL, with probability 1 – T, YH > YL. Prior to learning whether realized income is high or low, the individual is able to go into the market and purchase (or sell) two types of assets. Let the Asset 1 have a return structure such that it pays R1.H units of goods if y = YH and pays R1,L units of goods if y = YL. Similarly, let Asset 2 have a return structure such that it pays R2.H units of goods if y = YH and pays R2,L units of goods if y to spend in the asset market but this wealth is not storable and hence cannot be save to purchase consumption goods. Denote by a1 the amount of Asset 1 purchased by the individual and az the amount of Asset 2 purchased by the individual. The individual's problem is to maximize the expected utility from consumption sub- ject to the constraints that consumption must be financed out of income and the realized return from the asset portfolio as well…
- What does WRF = -0.50 mean? Group of answer choices The investor can borrow money at the risk-free rate. The investor can lend money at the current market rate. The investor can borrow money at the current market rate. The investor can borrow money at the prime rate of interest. The investor can lend money at the prime rate of interest.4. (Certainty equivalent) An investor has utility function U(x) = x1/3 for salary. He has a new job offer which pays $80,000 with a bonus. The bonus will be $0, $10,000, $20,000, $30,000, $40,000, $50,000, or $60,000, each with equal probability. What is the certainty equivalent of this job offer?Let rf be the risk free rate of interest. E[r e ] be the expected return of some risky asset. Suppose that this risky asset pays out in states when the aggregate endowment is particularly low. There are three possibilities: ( a) E[r e ] > rf (b) E[r e ] = rf (c) E[r e ] < rf Which case applies to E[r e ] and why?
- Equity investors are said to hold a residual interest because .... Select one: a. Receive their claims after paying all other claimants b. All of the above c. In the years of profit they receive unlimited gains d. Risk bearersAssume that a new law is passed which restricts investors to holding only one asset. A risk-averse investor is considering two possible assets as the asset to be held in isolation. The assets' possible returns and related probabilities (i.e., the probability distributions) are as follows: Asset X Asset Y Pr r Pr r 0.10 -3% 0.05 -3% 0.10 2 0.10 2 0.25 5 0.30 5 0.25 8 0.30 8 0.30 10 0.25 10 What is the coefficient of variation of Asset Y?You are the buyer of a call option which expires today. The call premium is $0.75 and the exercise price is $ 13.50. The underlying stock price is 12.50. What is your profit or loss? Group of answer choices Gain $0.75 Gain $1 Loss $0.75 Loss $0.25 None of the above.
