The graph to the right shows the budget line and indifference curves for two investors, A and B. Labels with the subscript 'm' refer to the stock market as a whole. Which of the following correctly interprets the graphical analysis? OA. B is more risk averse than A. Although both investors are risk averse and will want to invest in a mixture of stocks and risk-free T-bills, A will invest a greater portion of her wealth in stocks OB. A is more risk averse than B. While A will invest in a mixture of stocks and risk-free T-bills, B will want to invest more than 100 percent of her wealth in stocks ⒸC. A is more risk averse than B. Although both investors are risk averse and will want to invest in a mixture of stocks and risk-free T-bills, B will invest a greater portion of her wealth in stocks OD. B is more risk averse than A. While B will invest in a mixture of stocks and risk-free T-bills, A will want to invest more than 100 percent of her wealth in stocks RA R U₂ Standard deviation of return

The graph to the right shows the budget line and indifference curves for two investors, A and B. Labels with the subscript 'm' refer to the stock market as a whole. Which of the following correctly interprets the graphical analysis? OA. B is more risk averse than A. Although both investors are risk averse and will want to invest in a mixture of stocks and risk-free T-bills, A will invest a greater portion of her wealth in stocks OB. A is more risk averse than B. While A will invest in a mixture of stocks and risk-free T-bills, B will want to invest more than 100 percent of her wealth in stocks ⒸC. A is more risk averse than B. Although both investors are risk averse and will want to invest in a mixture of stocks and risk-free T-bills, B will invest a greater portion of her wealth in stocks OD. B is more risk averse than A. While B will invest in a mixture of stocks and risk-free T-bills, A will want to invest more than 100 percent of her wealth in stocks RA R U₂ Standard deviation of return

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

1. Now, imagine that Port Chester decides to crack down on motorists who park illegally by increasing the number of officers issuing parking tickets (thus, raising the probability of a ticket). If the cost of a ticket is $100, and the opportunity cost for the average driver of searching for parking is $12, which of the following probabilities would make the average person stop parking illegally? Assume that people will not park illegally if the expected value of doing so is negative. Check all that apply. A. 9% B. 18% C. 17% D. 10% 2. Alternatively, the city could hold the number of officers constant and discourage parking violations by raising the fine for illegal parking. Suppose the average probability of getting caught for parking illegally is currently 10% citywide, and the average opportunity cost of parking is, again, $12. The fine that would make the average person indifferent between searching for parking and parking illegally is ____ , assuming that people will not…
4) You are a financial professional working in a corporate loan department. A company named Mitch Hedberg Inc. (MH) comes to you for a loan. MH has debt from a previous loan (given by a different firm than yours) of 200. Your company analysts say that MH is likely to earn either 180, 240, or 300 this year - each with a probability of 1/3. MH wants you to lend them 100. MH could use this borrowed 100 to do either project X or project Y. Project X has a guaranteed return of 125 if the 100 is put there. Project Y may return either 0 or 210; each has probability of 1/2 and also costs 100 to do. a) Which project, X or Y, has the larger expected value? b) If you lend MH the 100, what will they do with the money? Why? Show your math. c) Should you lend MH the money or not? Show your math. d) Why did I choose the letters "MH" for this problem? What financial economic concept with initials "MH" is important in this problem?
K To get the maximum benefit of diversification, an investor should OA. include in his portfolio stocks whose returns are not correlated with each other OB. include in his portfolio stocks whose returns are positively correlated with each other OC. include only one stock in his portfolio. OD. include in his portfolio stocks whose returns are negatively correlated with each other
1. Which of the following is INCORRECT? a All of a stock's risk could be unsystematic. b. A negative beta stock has an expected return less than the risk-free rate. c. Anticipated returns on any given stock are always greater than 0. d. Two assets with a correlation of -1 could be combined to create a portfolio with a standard deviation of zero (no risk). 2. Which of the following measures the total risk of a portfolio? a. Beta b. Standard Deviation c. Correlation Coefficient d. Alpha 3. Which of the following stocks have the highest systematic risk? a A stock with high correlation to the market and high returm volatility. b. A stock with low correlation to the market and a high return volatility. c A stock with high correlation to the market and a low return volatility. d. A stock with low correlation to the market and a low return volatility. 4. Which of the following companics have the lowest systematic risk? a A company that sells soups (Campbells), beta=0.60 b. A coffee company…
Your friend is contemplating buying a local restaurant. He has assessed the lifetime profits, including resale, to be $11 million with 20% chance, $6 million with 60% chance or $3 million with 20% chance. Knowing the most your friend would pay for the restaurant is $6.4 million, what can you infer about the situation? O A. The expected payoff of the restaurant is $6.333 million, the risk-discount being offered by your friend is $77.000 and your friend is risk averse with respect to this purchase. O B. The expected payoff of the restaurant is $6.4 million, the risk-premium being required by your friend $0 and your friend is risk neutral with respect to this purchase. o C. The expected payoff of the restaurant is $6.4 million, the risk-premium being required by your friend $200,000 and your friend is risk seeking with respect to this purchase. O D. The expected payoff of the restaurant is $6.333 million, the risk-premium being required by your friend is $333,000 and your friend is risk…
those determinations. Respond to the following questions in a minimum of 175 words: . Consider a situation that you might need to use your understanding of probability to make an informed decision. • What sorts of information would you collect? • How might you use what you have learned about probability to determine a course of action? What are the possible benefits and limitations of this approach? Due Monday Reply to at least 2 of your classmates. Be constructive and professional in your responses. Copyright 2020 by University of Phoenix. All rights reserved. New Group 1 17 Responses 33 Replies
1. Tanner is choosing between two investment options. He can invest $500 now and get (guaranteed) $550 in one year, or invest $500 now and get (guaranteed) $531.40 back later today. The risk-free rate is 3.5%. Which investment should Tanner prefer? A) $531.40 later today, since $1 today is worth more than $1 in one year. B) $550 in one year, since it is $50 more than he invested rather than $31.40 more than he invested. C) Neither - both investments have a negative NPV. D) Tanner should be indifferent between the two investments, since both are equivalent to the same amount of cash today.
a. Consider the Oakdale Furniture Company described in the given problem. Under what circumstances might the major portion of the usage of the glue be predictable?b. If the demand were predictable, would you want to use a probability law todescribe it? Under what circumstances might the use of a probability model of demand be justified even if the demand could be predicted exactly?
The shape of your utility function implies that you are a the difference in utility between A and Ci Cis Individual, and, therefore, you the difference between C and B. accept the wager because Which of the following sentences most appropriately describe why the pain of losing $1,000 is greater than the joy of winning $1,000 for individuals who are risk averse? Check all that apply. Risk-averse people overestimate the probability of losing money. The utility function of a risk-averse person exhibits the law of diminishing marginal utility. The more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar. The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar
Banks often close Repo-Deals with other banks. Today the lower Rhine-Bank (LRB) owns a 6% CHF-fixed coupon bond which was issued by the Swiss Novartis Group and is subject of a Repo-Deal. Three months ago the bank closed the Repo-Deal which originally had a maturity of six months. 1. Please name the risk which is hedged by Repo Deal. 2. Please name two risks which are related to the above mentioned bond. 3. Select one risk of the above mentioned bond and name one means/financial instrument in order to hedge the selected risk. 4. Briefly describe the events or actions which a. Took place three months ago, b. will take place in three months.
1. Write down the behavioral trap that is more likely to occur in each of the following case and Justify your answer a) While investing her money on share market, Mila filters out the information that contradicts her original idea about some particular share. b) Lee attributes successful outcomes to her own actions and bad outcomes to external factors. c) Paul continues to invest in Aqua Company’s share despite its persistent negative return. d) Sifa buys only those shares that has a consistent upward trend of returns. e) Fariha suggests her friend Samia to invest on ABC Company’s share as she foresees higher return from it. f) Sunny sells a profitable Beximco share today that earned him positive return.
1. Risk Premium: Assume your wealth is $100 and like in the Veritassium video you're offered a bet of a 50% chance of winning $10 and a 50% chance of losing $10. Assume you have square root utility. a. What is the utility you enjoy by holding the $100 of current wealth? b. What is the expected utility you foresee by entering the bet? Will you take the bet? c. What is your risk premium? Do you think someone would pay this to avoid the bet? d. Draw a diagram and label the relevant values.