We actually maximize our utility function

Assignment Help Financial Management

Reference no: EM131506788

Suppose that the world can be described using two states and two stocks Y and Z are available. We assume the stocks’ future prices have the following distributions:

State Future Prices Stock Y Future Prices Stock Z

1 $10 $15

2 $20 $ 11

The initial prices for the stocks are: Y (1) = $13, Z(1) = $10. Our utility function in (w1, w2) space is U(w1, w2) = w1 ∗ w2, where U represents the utility level. Now we have an initial endowment of $420. How many shares and what positions of Y and Z should we choose to build our portfolio so that we actually maximize our utility function? (Assume fractional shares are permitted.)

Reference no: EM131506788

Questions Cloud

Explain how goal alignment can improve profitability : Explain how goal alignment can improve profitability and overall return to the shareholders of the company. (approximately 1 page)

Should the old assembly machine be replaced : A high-speed electronic assembly machine was purchased two years ago for $50,000. At the present time, it can be sold for $25,000 and replaced by a newer model.

Selling the units as scrap and reworking and selling units : What is the incremental income from selling the units as scrap and reworking and selling the units?

Provie an overview of the concept of ethnocentrism : Select a movie or TV show that effectively communicates the culture, values, and norms of a society that is different from your own culture.

We actually maximize our utility function : How many shares and what positions of Y and Z should we choose to build our portfolio so that we actually maximize our utility function?

Is lafarge practicing system 4 management : Is Lafarge practicing System 4 Management? Provide support for your answer - Does "The Lafarge Way" have an influence on turnover at the organization? How so?

Determine the economic life of the challenger : A city water and waste-water department has a four-year-old sludge pump that was initially purchased for $65,000.

What is a topic sentence : What is a topic sentence? What is an example of an effective topic sentence for one of your body paragraphs

Determine companys predetermined overhead application rate : Calculate the company's predetermined overhead application rate. Calculate the finished-goods inventory for the 12/31/02 balance sheet.

User Account

All Pages