Reference no: EM132923653

1. What are the advantages of variance of return as the definition
of risk compared with semi-variance and shortfall probabilities? What is the main disadvantage?
2. List the assumptions underlying the theory of consumer choice.
3. Explain why a consumer will choose the bundle of goods which occurs where the budget line is tangential to an indifference curve.
4. The price of Good A is £3 and the price of Good B is £10. The marginal utility from the last unit of Good A is 30 and the marginal utility from the last unit of Good B is 50.
(i) Is the consumer in a utility-maximizing equilibrium position?
(ii) If not, what changes in consumption would a rational consumer make to increase total utility?
5. What is meant by a state-dependent utility function?
6. Explain why the optimal portfolio on the efficient frontier is at the point where the frontier is at a tangent to an indifference curve.
7. Why do the investor's indifference curves slope upward? What determines their gradient?
8. Each year, A is offered the opportunity to invest £1,000 in a risk fund. If successful, at the end of the year he will be given back £2,000. If unsuccessful, he will be given back only £500. There is a 50 per cent chance of either outcome. What is the expected rate of return per annum on the investment to A?
9. State the main uses of multifactor models and single-index models. What is their main limitation?
10. List the assumptions underlying mean-variance portfolio theory