please answer in text form and in proper format answer with must explanation , calculation for each part and steps clearly As part of their investment strategy, the Carringtons have decided to put $100,000 into stock market investments and also into purchasing precious metals. The performance of theinvestments depends on the state of the economy in the next year. In an expanding economy, it is expected that their stock market investment will outperform their investment inprecious metals, whereas an economic recession will have precisely the opposite effect. Suppose the following payoff matrix gives the expected percentage increase or decrease inthe value of each investment for each state of the economy.Stock market investment305Expanding Economiceconomy recession-1510Commodity investment(a) Determine the optimal investment strategy for the Carringtons' investment of $100,000. (Round your answers to the nearest dollar.)stockscommodities(b) What profit can the Carringtons expect to make on their investments over the year if they use their optimal investment strategy? (Round your answer to the nearestdollar.)$

To determine the optimal investment strategy for the Carringtons, use the concept of expected value.…

Answered: As part of their investment strategy,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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9.5.018. As part of their investment strategy, the Carringtons have decided to put $100,000 into stock market investments and also into purchasing precious metals. The performance of the investments depends on the state of the economy in the next year. In an expanding economy, it is expected that their stock market investment will outperform their investment in precious metals, whereas an economic recession will have precisely the opposite effect. Suppose the following payoff matrix gives the expected percentage increase or decrease in the value of each investment for each state of the economy. Stock market investment Commodity investment Expanding Economic economy recession 15 5 -10 10 (a) Determine the optimal investment strategy for the Carringtons' investment of $100,000. (Round your answers to the nearest dollar.) stocks commodities $ $ (b) What profit can the Carringtons expect to make on their investments over the year if they use their optimal investment strategy? (Round your…
Assume Gillette Corporation will pay an annual dividend of $0.64 one year from now. Analysts expect this dividend to grow at 12.7% per year thereafter until the 4th year. Thereafter, growth will level off at 1.6% per year. According to the dividend-discount model, what is the value of a share of Gillette stock if the firm's equity cost of capital is 7.2%? The value of Gillette's stock is (Round to the nearest cent.)
There are two risky assets, namely Asset 1 and Asset 2, in the economy and only two investors, namely Alice and Bob, who can borrow or lend at the risk-free rate of 2%. The risk-free asset, though, is in a net supply of zero. Alice's initial wealth is $70,000, and Bob's initial wealth is $50,000. Alice has invested $80,000 in Asset 1 and $20,000 in Asset 2. Assume that both Alice and Bob are mean-variance efficient investors, which of the following statements is wrong? Bob has invested $16,000 in Asset 2 The market capitalization of Asset 2 is $24,000 Bob has lent Alice $30,000 The market capitalization of Asset 1 is $80,000
A corporation is trying to decide whether to buy the patent for a product designed by another company. The decision to buy will mean an investment of $8 million, and the demand for the product is not known. If demand is light, the company expects a return of $1.3 million each year for three years. If demand is moderate, the return will be $2.5 million each year for four years, and high demand means a return of $4 million each year for four years. It is estimated the probability of a high demand is 0.4, and the probability of a light demand is 0.2. The firm's (risk-free) interest rate is 12%. Calculate the expected present worth of the patent. On this basis, should the company make the investment? (All figures represent after - tax values.)
The Salar de Uyuni basin in Bolivia contains one of the world's largest deposits of lithium. However, this basin can also be used to grow quinoa, one of the region's most important crops, and is the site of considerable tourism. A study estimated the value of mining lithium from this basin to be worth $380 million, quinoa farming to be worth $11 million, and tourism to be worth $27 million. Assume that if the basin is mined that it cannot be used for farming or tourism. The opportunity cost of mining the basin is _____, and (based on these numbers) Bolivia _____ mine for lithium here. -$11 million; should -$38 million; should -$27 million; should -$418 million; should not
Pancraziland is a two-period small open economy with uncertainty that specializes in the production of pizza Agents living in Pancraziland have an increasing and concave utilty function. Pancraziland starts with a negative asset position. In period 1 researchers make two important discoveries. First, they develop techniques that are able to forecast more exactly the quality of next period technology to produce pizzas. Second, they also develop a new pizza sauce that could be only produced in period 2, but that surely will generate an Increase of pizza sales. How the period 1 current account of Pancraziland will vary, in response to the new discoveries? The current account in period 1 is surely positive b. The change in the current account is unclear because the two discoveries have effects on the current account of opposite signs The current account in period 1 is unaffected, because the discoveries will be fruitful only in period 2 d. The current account in period 1 improves The…
Ben is a retired budget auditor who is currently looking for a new investment opportunity. He is considering two investments: Calzone Zone, a small restaurant specialising in calzone, and Icetown, a skating and curling rink. The projected cash flows of the two investments are shown below. Ben can only choose one projects, so he asks for your help and advice in reaching a decision on which investment to accept. He tells you he requires a 5% rate of return on his investment. Calzone Icetown Zone Cash flows £000 £000 Initial investment (885) 150 (300) 215 Cash flows year 1 Cash flows year 2 Cash flows year 3 Cash flows year 4 Cash flows year 5 195 215 200 230 265 215 215 (585) Assume the initial investment arises at the start of the first year of the project and all the subsequent cash flows occur at the end of the year. Question A. What are the economic factors reflected in the required rate of return? Discuss the likely effects of the economic shock brought by the COVID-19 pandemic on…
You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years.You are a financial planner. One of your clients is 40 years old and wants to begin saving for retirement. You advise her to put $5,000 a year into the stock market. You estimate that the market's effective return will be, on average, 12 percent a year. Assume the investment will be made at the end of the year. What is the value of her savings after 20 years. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
A sports mortgage is the brainchild of Stadium Capital Financing Group, a company headquartered in Chicago, Illinois. It is an innovative way to finance cash-strapped sports programs by allowing fans to sign up to pay a “mortgage” over a certain number of years for the right to buy good seats at football games for several decades with season ticket prices locked in. The locked-in price period is 50 years in California. Assume you and your brother went to UCLA. Your brother, Harold, purchases a $50,000 mortgage and pays for it now to get season tickets for $290 each for 50 years, while you, being a three-time alumnus of the same university, are able to buy season tickets at $390 in year 1, with prices increasing by $20 per year for 50 years. NOTE: This is a multi-part question. Once an answer is submitted, you will be unable to return to this part. Which of you made the better deal at an interest rate of 8% per year? The present worth of Harold's investment is $− , and the present…
A sports mortgage is the brainchild of Stadium Capital Financing Group, a company headquartered in Chicago, Illinois. It is an innovative way to finance cash-strapped sports programs by allowing fans to sign up to pay a “mortgage” over a certain number of years for the right to buy good seats at football games for several decades with season ticket prices locked in. The locked-in price period is 50 years in California. Assume you and your brother went to UCLA. Your brother, Harold, purchases a $45,000 mortgage and pays for it now to get season tickets for $290 each for 50 years, while you, being a three-time alumnus of the same university, are able to buy season tickets at $390 in year 1, with prices increasing by $20 per year for 50 years. What should Harold have been willing to pay UCLA upfront for the mortgage to make the two plans exactly equivalent economically if the rate of interest is 8% per year? (Assume Harold has no reason to give extra money to UCLA at this point and that…
Minerva will be celebrating her 60th birthday two months from now. She was able to save certain amount of money from her 30 years in public school as Principal. She is now planning to invest it to earn something when she already retires. Which of the following options will you recommend? Why? a. Construct a resort to be rented out to others for team building, seminars, and other gatherings suited to the place; b. Invest in the latest trending Foreign Exchange (FOREX) trading in the Philippines which earns high rate of return; c. Buy different cars to be registered and used for rented transportation like GRAB.

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