Compute the expected value and the standard deviation

Assignment Help Microeconomics

Reference no: EM13217328

Q1. Suppose an investment can yield three possible cash flows with their probabilities given in the parentheses: $600(p=0.5); $-100 (p=0.2) and $800 (p=0.3).

a) Compute the expected value and the standard deviation of this investment. Is this investment risky? Why?

b) The equation E(x)=359 + 0.5SD describes the indifference curve of this investor. Is this investor risk averse, risk neutral, or risk loving? Explain your answer and draw the curve.

c) How much would this person pay for the investment opportunity (certainty equivalent of the current investment)? How much is risk premium for the current investment?

Q2. Patrick consumes only two goods: Celtic Music concerts and Celtic Springs Water. Patrick earns $100 per month at his part-time job in the library. The price of Celtic concerts is $10. The price of Celtic Springs Water is $2. Patrick currently goes to 5 Celtic concerts and consumes 25 bottles of Celtic Spring Water in a month.
(a) Draw Patrick''s budget constraint and optimal consumption bundle. Please put Celtic concerts on the x-axis.
(b) In April Patrick receives a 5% pay increase. Meanwhile the inflation raises the price of concerts to $10.50 and the price of Celtic Springs Water to $2.10. Draw Patrick''s new budget constraint and optimal consumption bundle. Please put Celtic concerts on the x-axis. How many Celtic concerts does he attend in April? How many bottles of water does he drink in April?

Reference no: EM13217328

Questions Cloud

Ecological and economic perspective : "What impact does two (2) of your meals on our world from an ecological and economic perspective. You can pick breakfast, lunch or dinner.

1543 when copernicos introduced his theory : How many times did Earth orbit the sun between 140ce when ptolemy introduce his theory and 1543 when copernicos introduced his theory?

Formulate a numerical and verbal hypothesis statement : I have to formulate a numerical and verbal hypothesis statement concering our selected research issue. The research issue is Television does not promote aggression in children.

What are the synoptic gospels : What are the "synoptic" Gospels? Explain the meaning of the term 'synoptic.' Of what importance is the letter 'Q' in speaking about the Gospels?

Compute the expected value and the standard deviation : Compute the expected value and the standard deviation of this investment. Is this investment risky? Why? The equation E(x)=359 + 0.5SD describes the indifference curve of this investor. Is this investor risk averse, risk neutral, or risk loving? ..

Explain what is the y/sf exchange rate : You are considering exchanging Swiss franc (sf) for Japanese (y). At the bank you see the following rates posted. SF/$=0.9154 and Y/$=100.26

Explain describe the strategy for a start-up or a move : Imagine being a leader in a small-to-mid company. What if you had to: describe the strategy for a start-up or a move, resolve political arguments, rally support for a political issue, or discuss government for some other reason

Explain what is the significance of the patient''s payer : Discuss the process by which the patient in the case study is referred through the healthcare system from primary care to tertiary care and rehabilitation. What parts of this process works well and what can been improved?

Explain interactive multimedia and virtual reality : Define a role play and in doing so, be sure to identify and explain the five different types of role play. What are the differences between interactive multimedia and virtual reality, and why has virtual reality not become as popular?

User Account

All Pages