Mathematics for Elementary Teachers with Activities Plus MyLab Math -- Title-Specific Access Card Package (5th Edition)
5th Edition
ISBN: 9780134754208
Author: Beckmann, Sybilla
Publisher: PEARSON
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Chapter 2.5, Problem 10P
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4. Assume that a risk-free money market account is added to the market described in Q3.
The continuously compounded rate of return on the money market account is log (1.1).
(i) For each given μ, use Lagrange multipliers to determine the proportions (as a
function of μ) of wealth invested in the three assets available for the minimum
variance portfolio with expected return μ.
(ii) Determine the market portfolio in this market and calculate its Sharp ratio.
3. A market consists of two risky assets with rates of return R₁ and R2 and no risk-free
asset. From market data the following have been estimated: ER₁ = 0.25, ER2 = 0.05,
Var R₁ = 0.01, Var R2 = 0.04 and the correlation between R1 and R2 is p = -0.75.
(i) Given that an investor is targeting a total expected return of μ = 0.2. What
portfolio weights should they choose to meet this goal with minimum portfolio
variance? Correct all your calculations up to 4 decimal points.
(ii) Determine the global minimum-variance portfolio and the expected return and
variance of return of this portfolio (4 d.p.).
(iii) Sketch the minimum-variance frontier in the μ-σ² plane and indicate the efficient
frontier.
(iv) Without further calculation, explain how the minimum variance of the investor's
portfolio return will change if the two risky assets were independent.
2. A landlord is about to write a rental contract for a tenant which lasts T months. The
landlord first decides the length T > 0 (need not be an integer) of the contract, the
tenant then signs it and pays an initial handling fee of £100 before moving in. The
landlord collects the total amount of rent erT at the end of the contract at a continuously
compounded rate r> 0, but the contract stipulates that the tenant may leave before T,
in which case the landlord only collects the total rent up until the tenant's departure
time 7. Assume that 7 is exponentially distributed with rate > 0, λ‡r.
(i) Calculate the expected total payment EW the landlord will receive in terms of T.
(ii) Assume that the landlord has logarithmic utility U(w) = log(w - 100) and decides
that the rental rate r should depend on the contract length T by
r(T)
=
λ
√T
1
For each given λ, what T (as a function of X) should the landlord choose so as to
maximise their expected utility? Justify your answer.
Hint. It might be…
Chapter 2 Solutions
Mathematics for Elementary Teachers with Activities Plus MyLab Math -- Title-Specific Access Card Package (5th Edition)
Ch. 2.2 - Michael says that the dark marbles in Figure 2.25...Ch. 2.2 - When Jean was asked to say what the 3 in the...Ch. 2.2 - This rectangle of x’s is 45 of another (original)...Ch. 2.2 - This rectangle of x’s is 65 of another (original)...Ch. 2.2 - Kaitlyn gave 12 of her candy bar to Arianna....Ch. 2.2 - You were supposed to use 23 of a cup of coca to...Ch. 2.2 - Susan was supposed to use 54 of a cup of butter in...Ch. 2.2 - If 34 of a cup of a snack food gives you your...Ch. 2.2 - Make up a word problem or situation where one...Ch. 2.2 - Cake problem: Figure 2.26 represents two cakes of...
Ch. 2.2 - Harry wants to make 34 of a recipe of a potion....Ch. 2.2 - Figure 2.27 shows a picture of three pies. Draw a...Ch. 2.2 - Discuss why it can be confusing to show an...Ch. 2.2 - Draw a number line like the one in Figure 2.28 and...Ch. 2.2 - Draw a number line like the one in Figure 2.28 and...Ch. 2.2 - Draw a number line like the one in Figure 2.29....Ch. 2.2 - Give two different fractions that you can...Ch. 2.2 - Marquez says that the shaded region in Figure 2.31...Ch. 2.2 - NanHe made a design that used hexagons, rhombuses,...Ch. 2.2 - A county has two elementary schools, both of which...Ch. 2.3 - Use a math drawing to explain in your own words...Ch. 2.3 - Explain in two different ways why 23=2434Ch. 2.3 - Using the fractions 23 and 34 , describe how to...Ch. 2.3 - Using a math drawing, explain why dividing both...Ch. 2.3 - Using a math drawing with the exmaple 69 Describe...Ch. 2.3 - Draw a number line like the one in Figure 2.49....Ch. 2.3 - Draw a number line like the one in Figure 2.49....Ch. 2.3 - Draw a number line like the one in Figure 2.49....Ch. 2.3 - Draw a number line like the one in Figure 2.49....Ch. 2.3 - Draw a number line like the one in Figure 2.50....Ch. 2.3 - Draw a numebr line like the one in Figure 2.51....Ch. 2.3 - Draw a number line like the one in Figure 2.52....Ch. 2.3 - Draw a number line like the one in Figure 2.53....Ch. 2.3 - Erin says the tick mark indicated in Figure 2.54...Ch. 2.3 - First you poured 34 of a cup of water into an...Ch. 2.3 - First you poured 34 of a cup of water into an...Ch. 2.3 - You want to make a recipe that calls for 23 of a...Ch. 2.3 - Ken got 23 of a ton of gravel even though he...Ch. 2.3 - One serving of SnackOs is 23 of a cup. Jane wants...Ch. 2.3 - So far, Benny has run 12 of a mile, but that is...Ch. 2.3 - So far, Mahelia has run 32 miles, but that is only...Ch. 2.3 - See Figure 2.57. How many of Strip A does it take...Ch. 2.3 - The strips in Figure 2.60 show the relative...Ch. 2.3 - Draw a strip diagram like the one in Figure 2.60...Ch. 2.3 - Becky moves into an apartment with two friends on...Ch. 2.4 - Julie says that the drawing in Figure 2.65 shows...Ch. 2.4 - In your own words, explain in detail why we can...Ch. 2.4 - In your own words, explain in detail why we can...Ch. 2.4 - In your own words, explain in detail why it is the...Ch. 2.4 - Which fraction is greater, 35109or36104? To...Ch. 2.4 - Which fraction is greater, 1531or2347? To explain...Ch. 2.4 - Which fraction is greater, 35109or36104? To...Ch. 2.4 - Without using a calculator, order the following...Ch. 2.4 - Find a number between 2384 and 2998 and plot all...Ch. 2.4 - Find a number between 78134 and 124213 and plot...Ch. 2.4 - Find two different fractions between 25 and 35...Ch. 2.4 - Give two different methods for solving the...Ch. 2.4 - Give two different methods for solving the...Ch. 2.4 - A student says that 15 is halfway between 14 and...Ch. 2.4 - Sam has a method for comparing fractions: He just...Ch. 2.4 - Minju says that fractions that use bigger numbers...Ch. 2.4 - Malcolm says that 811710 because 87 and 1110...Ch. 2.4 - You may combine your answers to all three parts of...Ch. 2.4 - Consider the following list of fractions:...Ch. 2.4 - Suppose you start with a proper fraction and you...Ch. 2.5 - If your daily value of carbohydrates is 300 grams,...Ch. 2.5 - A road crew ordered 52 tons of gravel, but they...Ch. 2.5 - If your daily value of dietary fiber is 25 grams...Ch. 2.5 - If 36,000 people make up 15% of a population, then...Ch. 2.5 - If 180 milligrams of potassium constitute 5% of...Ch. 2.5 - In Happy Valley, the average rainfall in July is 5...Ch. 2.5 - If a 34 -cup serving of cereal provides your full...Ch. 2.5 - Mentally determine what percent 225 is of 250. Use...Ch. 2.5 - Show how to use a percent table and either “going...Ch. 2.5 - If a 23 cupserving of cereal provides your full...Ch. 2.5 - The Biggo Corporation hopes that 95% of its 4600...Ch. 2.5 - A company has bought 3.4 acres of land out of the...Ch. 2.5 - The mayor says that $3.6 million has been spent...Ch. 2.5 - Sixty percent of a city’s population of 84,000...Ch. 2.5 - Frank ran 80% as far as Denise. How far did Denise...Ch. 2.5 - GrandMart sells 115% as much soda as BigMart. How...Ch. 2.5 - Connie and Benton paid for identical plane...Ch. 2.5 - At a newsstand, 75% of the items sold are...Ch. 2.5 - A company produces two types of handbags and sells...Ch. 2.5 - A county has two elementary schools, school A and...Ch. 2.5 - Brand A soup is 20% solids and 80% water. Use this...Ch. 2.5 - At a store, there is a display of 300 cans of...Ch. 2.5 - Suppose that 200 pounds of freshly picked...
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