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?

Reviews

Write a Review

Microeconomics Questions & Answers

  Methods of internal rate of return

What is the machine's payback period? Compute net present value of machine if the cost of capital is 12%. Find out the expected internal rate of return for this machine?

  Determine the defender lowest euac

Determine the defender's lowest EUAC what is the challenger's economic life? When, if at all, should we replace the defender with thechallenger?

  Determining profit outcome

A firm is making production plans for upcoming quarter, but the manager doesn't know what the price of the product will be next month. She thinks there is a 30 percent chance price will be $500 and a 70 percent chance price will be $750.

  How do variable interest rate loans protect creditors

Many home mortgages in recent years have been made with variable interest rates. Typically, the interest rate is adjusted once a year based on the current rates on government bonds. How do variable interest rate loans protect creditors from the ef..

  Structure of oligopolistic market

From an economist standpoint, why might there be more research, development, and innovation occuring in oligopolistic market structure than in any other?

  Emphasize on wal-mart''s focus with regard to the cipd list

How does Walmart(WM) relate to organizational learning. I am particularly interested in the WM´s organization and its use of : a. reinforcement strategies (both positive and negative) b. E-learning with emphasize on Wal-Mart's focus with regard to th..

  Why do people move to some cities and away from others

Cities do not reproduce themselves. Why do people move to some cities and away from others You may want to examine why some cities grew from 1990 to 2000, but you need to examine key concepts that underlie urban growth.

  Was this huge raise a good idea-will it get bob to work

Bob is the company's best hourly worker, but his boss knows that Bob wishes to spend more time with his kids at home. Bob's boss gives Bob a huge increase in his hourly pay hoping to entice him to work more hours.

  Define inflation

At the end of the year, you discover that the catch was low and that fish prices had increased to $5.00 per pound, but fruit prices stayed at $1.50 and meat prices had actually fallen to $2.00.

  Why is sb omitted

"Suppose Y = $200, C = $140, G = $25, x-m = -5, and T = $25. What is Sp? What is I?" Here is the answer:Yd = Y - T | C + Sp = Y - T | Sp = Y - T - C,Sp = Y - C - T = 200 - 25 - 140 = $35,I = Sp + (T - G) + (x-m) = $35 I = $35 + 0 - 5 = $30

  Explain effects on level of savings and investment

Heavy rains caused the flooding of the Mississipi River and the Missouri River as well as some of their tributaries. This flood represented an important macroeconomic shock significantly damaging the aggregate capital stock and ..

  Describe marginal cost

On average college graduates earn significantly more income than those with less education and the disparity tends to widen into middle age. marginal external cost equals marginal private cost minus marginal social cost.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd