Economics Fenner Smith from Workouts 13.2 is an investor who has preferences for risk o and return u given by the utility function u = min (u, 4 -0). He plans to invest $40,000. The market rate of return is 8 percent and the risk-free rate of return is 2 percent. The risk on the market portfolio is 2 percent. a. How much of his $40,000 will a utility maximizing investor hold in the market portfolio? Show this as Bundle A in your diagram. b. The market return rises to 16 percent.How much of his $40,000 will he hold in the market portfolio. Show this as Bundle C in your diagram. c. Calculate the Hicksian CV for this change. Show this in your diagram as Bundle B.

Economics Fenner Smith from Workouts 13.2 is an investor who has preferences for risk o and return u given by the utility function u = min (u, 4 -0). He plans to invest $40,000. The market rate of return is 8 percent and the risk-free rate of return is 2 percent. The risk on the market portfolio is 2 percent. a. How much of his $40,000 will a utility maximizing investor hold in the market portfolio? Show this as Bundle A in your diagram. b. The market return rises to 16 percent.How much of his $40,000 will he hold in the market portfolio. Show this as Bundle C in your diagram. c. Calculate the Hicksian CV for this change. Show this in your diagram as Bundle B.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.7P

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