(Please answer the question below using the attached image)1. What are the values of the unit claims (C1 and C2)? Contingent Claims AssignmentPlease show work for partial credit.Suppose that we can describe the world using two states and that two assets are available, asset Kan asset L. We assume the asset's future prices have the following distributionStateFuture Price Asset KFuture Price Asset L1$55$602$45$30The current price of asset K is $50, and the current price of asset L is $50.

Please show work for partial credit. e that we can describe the world using two states and that two assets are a L. We assume the asset's future prices have the following distribution State Future Price Asset K Future Price Asset L 1 $55 $60

Please show work for partial credit. e that we can describe the world using two states and that two assets are a L. We assume the asset's future prices have the following distribution State Future Price Asset K Future Price Asset L 1 $55 $60

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance

Section: Chapter Questions

Problem 4.8P

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Suppose that we can describe the world using two states and that two assets are available, asset K an asset L. We assume the asset’s future prices have the following distribution State Future Price Asset K Future Price Asset L 1 $55 $60 2 $45 $30 The current price of asset K is $50, and the current price of asset L is $50. What is the price implied for an asset providing $100 in state 1 and $50 in state 2?
E) There is a business cycle expansion, so both supply and demand shifts. After the shift, thenew demand curve is given by: D = 4000 + X − 2P, whereas the new supply curve is S =2P+ 200. For which values of X will the interest increase/decrease? Which values of X arein line with empirical data?
question 9 Consider the credit contract with collateral in the adverse selection problem from our class. The incentive compatibility constraint for the low risk type borrower states that obesvarad options a. The low risk type borrower is indifferent between applying for the low risk type credit contract and the high risk type credit contract. b. The low risk type borrower prefers applying for the low risk type credit contract over the non-participation c. The low risk type borrower only applies for the low risk type credit contract. d. The low risk type borrower derives higher utility than the risk type borrower. question 10 According to Diamond and Dybvig (1983), why does a bank run happen? options a. Because banks can have a liquidity problem without being insolvent. b. Because agents do not know their types at the beginning. c. (economic) interest. d. Because banks always need to borrow money to pay for the liquidity needs in period 1.
Kevin's reference dependent utility over money is y and effort is E, refer to the: instantaneous utility function: rt: reference point for wealth, which demonstrated his recent wealth Kevin does not have from money but from gains and losses of money instead. There is no discounting, and assume that Kevin's current wealth from his job is 0. Kevin is thinking about a new role at work which allows him to increase his income by $1000 per period for two periods, counting from the current period, which is t = 0. He must undergo a training which require an effort of EO = 3500 at that value of alpha, how much ultility would Kevin lose relative to his non-projection-biased preferences if she took the position 1000 250 500 750
In equilibrium U′(Yt)qet = δEt[U′(Yt+1)(qet+1 + ˜ Yt+1)] holds. Assume the following: . Infinite periods . δ = .97 . The agent follows ln utility . There are 2 futures states where (Y 1, Y 2) = (2, .50) which evolve based on transition matrix T. . The transition matrix T is: T = [.60 .40 .40 .60] (hint: Answering this question involves solving the system of equations: U′(Yt)qet = δEt[U′( ˜ Yt+1)(˜qt+1 + ˜ Yt+1)] U′(Yt)qet = δEt[U′( ˜ Yt+1)( ˜ Yt+1)] + δEt[U′( ˜ Yt+1)(˜qt+1)] What are the 2 equilibrium conditions? What is the price of q(2) and q(.50)?
QUESTION ONE (1) Assume that an officer of ZED Bank wants to execute a transaction with the following characteristics using the risk-adjusted return on capital (RAROC) model: ▪ Probability of default (PD) = 45 basis points ▪ Loss given default (LGD) = 50% ▪ Exposure at default (EAD) = US$ 2.0 million ▪ The risk-free rate of return is 6% This is a loan to an agricultural company and the bank’s economic capital (EC) model delivers the following charge for the firm:EC of exposure = 5% of EAD, which is US$ 100,000. Assume that the bank has set a RAROC hurdle rate of 15% and this transaction has a net profit of US$ 12,000 before other adjustments. Required: Compute the bank’s risk-adjusted rate of return on the loan to an agricultural company? Now assume that the bank could also have made a loan for the same amount and net profit of US$ 12,000 before other adjustments to a chemical manufacturing firm, and that the EC = 2.5% in this case. Which loan between the two should the bank…
(a) You hold a consol that pays a coupon C in perpetuity. The current interest rate is i, and the average expectation in the market is that this will remain unchanged. What will be the price of the consol today? [1%] (b) In the next period however, the interest rate changes unexpectedly to i 0 . What is the new price of the bond? If the bond is sold at the beginning of that next period, what is the yield from the consol? Does the yield increase or decrease if i 0 > i? [4%] (c) Suppose alternatively that the market expects that the interest rate will change to i 0 after the initial period. What is the initial value of the consol, and what is the yield from selling it after one period? [5%]
Malaysians are at their worst financial position in 2022 compared with the last five years, and thelooming recession may push them to the brink with dwindling savings coupled with theaftermath of the Covid-19 pandemic. A recent survey by Malaysian financial services websiteRinggitPlus revealed that 70 per cent of Malaysians saved less than RM500 per month (S$153)in 2022 or did not save at all. “This is compared with 52 per cent of Malaysians saving less thanRM500 monthly in 2021, the largest year-on-year increase since 2018,” the RinggitPlusMalaysian Financial Literacy Survey 2022 showed....Mr Patrick Tay, deals partner, economicsand policy at Malaysia PwC, is not surprised by the decline in savings in 2022. “One reason forthe depleted savings is low wages and higher inflation. But another key reason is that Malaysiansare spending more post-pandemic on holidays or other leisure expenses because some may feelthat they saved during the pandemic, and it is fine to now spend this year…
B. Richard's nickname is "No-Risk Rick" because he is an extremely risk-averse individual. His utility function is given by U(W) = √W. where W represents his current wealth in dollars. He currently has $100 worth of property, but there is a 50% chance that all of it will be stolen. What is Richard's expect wealth and expected utility of wealth? An insurance company offers to reimburse Richard for his loss if the money is stolen. What is the most that Richard would pay for such a policy? Explain. Please solve this with in 1 hour
a) You are a senior financial analyst and have been asked to examine whether the global financial crisis and the COVID-19 affect financial and non-financial firms to the same extent? For the period beginning in 2006, plot the interest rates on threemonth nonfinancial commercial paper (FRED code: CPN3M), three-month financial commercial paper (FRED code: CPF3M) and Treasury bills (FRED code: TB3MS). Compare the evolution of these interest rates. b)Market participants, including financial institutions, fund managers and corporations, must understand monetary policy setting impacts on economic activity and business cycle. A central bank will typically implement monetary policy settings in order to achieve certain economic outcomes over a business cycle. In order to forecast future economic conditions and business activity, business managers therefore need to understand the business cycle. Briefly describe the principal monetary policy objective of the Reserve Bank of Australia and give…
Due date: Friday November 20, 2015Too Big to FailAmerican International Group, INC (AIG) caseIntroductionAIG is the story of a company, and its network of financial partners, who tookunprecedented risk and fell because of it. To prevent global economic disaster, the U.S.government came to its rescue. This has resulted in the biggest taxpayer bailout of a privatecompany in American history.BackgroundAmerican International Group, Inc. â€“ also known as AIG â€“ is an Americanmultinational insurance corporation with more than 88 million customers in 130 countries. AIGcompanies employ over 64,000 people in 90 countries. The company operates through three corebusinesses: AIG Property Casualty, AIG Life and Retirement and United Guaranty Corporation(UGC). AIG Property Casualty provides insurance products for commercial, institutional andindividual customers. AIG Life and Retirement provides life insurance and retirement services inthe United States. And UGC focus…
1. Suppose someone’s cost of going to the ATM is $1.50, there is a 12 percent probability of having his cash lost or stolen, and he spends $5 each day. Suppose his total cost of holding cash = (547.50/T) + (0.375 × T). Find the nominal interest rate.