EP CALCULUS FOR BUSINESS..-MYLAB ACCESS
14th Edition
ISBN: 9780135961438
Author: Barnett
Publisher: PEARSON CO
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Chapter A.2, Problem 58E
To determine
To write: An algebraic expression which represents the total annual income from all the investments and then simply the expression.
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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 A.2 Solutions
EP CALCULUS FOR BUSINESS..-MYLAB ACCESS
Ch. A.2 - (A)Given the polynomial 6x5 + 7x3 2, what is the...Ch. A.2 - Remove parentheses and simplify: (A)3(u2 2v2) +...Ch. A.2 - Prob. 3MPCh. A.2 - Subtract 2x2 5x + 4 from 5x2 6, both...Ch. A.2 - Multiply: (2x3)(2x2+3x2)Ch. A.2 - Prob. 6MPCh. A.2 - Perform the indicated operations and simplify:...Ch. A.2 - Prob. 1ECh. A.2 - Problems 18 refer to the following polynomials:...Ch. A.2 - Problems 18 refer to the following polynomials:...
Ch. A.2 - Problems 18 refer to the following polynomials:...Ch. A.2 - Prob. 5ECh. A.2 - Problems 18 refer to the following polynomials:...Ch. A.2 - Problems 18 refer to the following polynomials:...Ch. A.2 - Problems 18 refer to the following polynomials:...Ch. A.2 - In Problems 930, perform the indicated operations...Ch. A.2 - In Problems 930, perform the indicated operations...Ch. A.2 - In Problems 930, perform the indicated operations...Ch. A.2 - In Problems 930, perform the indicated operations...Ch. A.2 - In Problems 930, perform the indicated operations...Ch. A.2 - Prob. 14ECh. A.2 - In Problems 930, perform the indicated operations...Ch. A.2 - In Problems 930, perform the indicated operations...Ch. A.2 - In Problems 930, perform the indicated operations...Ch. A.2 - In Problems 930, perform the indicated operations...Ch. A.2 - In Problems 930, perform the indicated operations...Ch. A.2 - Prob. 20ECh. A.2 - In Problems 930, perform the indicated operations...Ch. A.2 - Prob. 22ECh. A.2 - In Problems 930, perform the indicated operations...Ch. A.2 - Prob. 24ECh. A.2 - Prob. 25ECh. A.2 - In Problems 930, perform the indicated operations...Ch. A.2 - Prob. 27ECh. A.2 - Prob. 28ECh. A.2 - Prob. 29ECh. A.2 - In Problems 930, perform the indicated operations...Ch. A.2 - In Problems 3144, perform the indicated operations...Ch. A.2 - Prob. 32ECh. A.2 - In Problems 3144, perform the indicated operations...Ch. A.2 - In Problems 3144, perform the indicated operations...Ch. A.2 - In Problems 3144, perform the indicated operations...Ch. A.2 - In Problems 3144, perform the indicated operations...Ch. A.2 - In Problems 3144, perform the indicated operations...Ch. A.2 - Prob. 38ECh. A.2 - Prob. 39ECh. A.2 - In Problems 3144, perform the indicated operations...Ch. A.2 - In Problems 3144, perform the indicated operations...Ch. A.2 - In Problems 3144, perform the indicated operations...Ch. A.2 - In Problems 3144, perform the indicated operations...Ch. A.2 - Prob. 44ECh. A.2 - Subtract the sum of the last two polynomials from...Ch. A.2 - Subtract the sum of the first two polynomials from...Ch. A.2 - In Problems 4750, perform the indicated operations...Ch. A.2 - Prob. 48ECh. A.2 - In Problems 4750, perform the indicated operations...Ch. A.2 - Prob. 50ECh. A.2 - If you are given two polynomials, one of degree m...Ch. A.2 - What is the degree of the sum of the two...Ch. A.2 - How does the answer to Problem 51 change if the...Ch. A.2 - How does the answer to Problem 52 change if the...Ch. A.2 - Prob. 55ECh. A.2 - Show by example that, in general, (ab)2a2b2....Ch. A.2 - Investment. You have 10,000 to invest, part at 9%...Ch. A.2 - Prob. 58ECh. A.2 - Prob. 59ECh. A.2 - Prob. 60ECh. A.2 - Prob. 61ECh. A.2 - Nutrition. Each ounce of food M contains 8 units...
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