1. Suppose there is a mutual fund and each consumer buys a share in it for her endowment at t = 0. The mutual fund maximises the wealth of its shareholders when choosing IF, the investment in the long term technology. At t = 1, the mutual fund pays dividend d to each of its shareholders. At t = 1, the shares can be traded at price pª. a. Set up the mutual fund's optimisation problem and derive and interpret the first order condition. What happens when R increases and why? b. What is the optimal consumption profile c, cand the optimal investment IF? c. Calculate (i.e. derive an expression for) d and p. I I I 1 I 1 I 1 I I I I I I T I I I I I I I

1. Suppose there is a mutual fund and each consumer buys a share in it for her endowment at t = 0. The mutual fund maximises the wealth of its shareholders when choosing IF, the investment in the long term technology. At t = 1, the mutual fund pays dividend d to each of its shareholders. At t = 1, the shares can be traded at price pª. a. Set up the mutual fund's optimisation problem and derive and interpret the first order condition. What happens when R increases and why? b. What is the optimal consumption profile c, cand the optimal investment IF? c. Calculate (i.e. derive an expression for) d and p. I I I 1 I 1 I 1 I I I I I I T I I I I I I I

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter13: Investing In Mutual Funds, Etfs, And Real Estate

Section: Chapter Questions

Problem 2FPE

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