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"Suppose you have $10,000 to invest. A broker phones you with some information you requested on certain junk bonds. If the company issuing the bonds posts a profit this year, it will pay you a 40 percent interest rate on the bond. If the company files for bankruptcy, you will lose all you invested. If the company breaks even, you will earn a 10 percent interest rate. Your broker tells you there is a 50 percent chance that they will break even and a 20 percent chance that the company will file for bankruptcy. Your other option is to invest in a risk-free government bond that will guarantee 8 percent interest for 1 year.
a. What is the expected interest rate for the junk bond investment?
b. Which investment will you choose if your utility function is given by U = (M2)?
c. Which investment will you choose if your utility function is given by U = (√M)?
Globalization has had a significant impact on the world economy and the economy of the United States. Using economic principles, describe how globalization has affected positively and negatively the economy of the United States.
A system which was established with a cost of $1000000 five years ago has a market value of $ 5000 with a salvage value of $30000 after 1 year and $25000 after 2 year and $ 15000 after 3 year the annual worth of the challenger will be $ 65000 perform..
380 labor hours were required to produce the first unit in a production run. 140 labor hours were required to produce the 4^th unit. You base been asked to determine a quote for an order of 4 units. If the labor rate is $25,00 per hour, how much will..
In your own words, explain the farmer’s optimal solution in the free market using marginal cost analysis. How might this solution be suboptimal from society’s perspective? Explain who benefits and is harmed under the free market solution.
You are the chief economic advisor to the country of Utopia. Life is good in Utopia but people still suffer from the common cold and other ailments. The local Panacea Company has spent $1,000 developing a new drug called Nosnot that cures the common ..
The aggregate expenditure measure of GDP came from
Why does America have a two-party system?
Foreign investment has been called both a blessing and a curse for developing countries. Explain how this can be the case. What has to happen for foreign investment to be considered more consistently as a blessing?
What is the rate of inflation of the U.S. dollar is 5% and the rate of inflation of the Japanese yen is 2%. What is the percent change in the real $/Y exchange rate.
The Malthusian population trap model implies that
Suppose there is a simultaneous increase in government spending and reduction in the money supply. Explain with the help of a graph what effect this particular policy mix will have on output and the interest rate. Based on your analysis, do we know w..
Suppose that an impending environmental regulation to control that hazard is expected to reduce risk of premature death from 6/100,000 to 2/100,000 per year in that exposed population of 4 million people. Your boss asks you to tell her what is the ma..
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