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what is fisher effect theory and explian is it holds are not in short trem capital markets
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- if tobin q is greater than one , then the stock market value installed capital at more tha its cost to replace. this creates an incentive to invest, because managers can raise the market value of the firms stock by selling more capital true or falseWhat is a Dividend Discount model? What is the main advantage of this model over the Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT) approaches? ExplainAlthough its application continues to spark vigorous debate, modern financial theory is now applied as a matter of course to investment management. CAPM, the capital asset pricing model, is a theoretical representation of the behavior of financial markets and can be employed in estimating a company’s cost of equity capital. Despite limitations, the model can be a useful addition to the financial manager’s analytical tool kit. The expanding work on the theory and application of CAPM has produced many sophisticated, often highly complex extensions of the simple model. Discuss the assumptions that the modern financial theory and CAPM rest on. Discuss whether assumptions that they depend on are realistic or unrealistic. Discuss how the concept of risk is defined or calculated in financial theory and CAPM.
- How would the price of the bond be affected by changing the going market interest rate? (Hint: Conduct a sensitivity analysis of price to changes in the going market interest rate for the bond. Assume that the bond will be called if and only if the going rate of interest falls below the coupon rate. That is an oversimplification, but assume it anyway for purposes of this problem.)Jane, who works for the economic research department in a multinational corporation, is preparing a report for the advisory board of the company. The report intends to clarify in which country they should invest given the expected change in demand. The objective is, of course, to identify the country with greater change in demand. Jane analyzes countries A and B that currently have the same demand. She calculates the partial derivatives of demand with respect to income and finds that for country A it is greater than for country B. Demand in country A is measured in pounds and in country B in Kg. Can we conclude that if the only change expected in both countries is a change in income of 3.5%, then the company should invest in country A? no, we should calculate instead the income elasticity for the consumption of the good the company sells in each country. There is no statistic that can illuminate the advisory board on this problem. yes, because the derivative tells us that for each…Suppose that an investor with $2 in capital has a logarithmic utility of wealth function: U 5 ln ( w ). The investor has the opportunity to buy into the gamble described in the St. Petersburg paradox. Assume that the investor can borrow without interest and that the gamble payoff is 2 i where i is the number of tosses or outcomes realized before the first head is realized. What is the investor’s current utility of wealth level? How much would the investor be willing to pay for the gamble described in the St. Petersburg paradox? How much would the investor be willing to pay for the gamble described in the St. Petersburg Paradox if his initial wealth level were $1000 rather than $2? What would be your answer to part b if the gamble payoff were to change to 2 2 i 2 1 where i is the number of tosses or outcomes realized before the first head is…
- Suppose that will all exogenous variable at their original values, the autonomous part of money demand increases to 80. Solve for the new values of e, Y and NX. With the help of graphs, explain very carefully the mechanisms by which a new equilibrium is reached.Excercise: Consider the Diamond-Dybvig model of bank runs utility function is given by U(c) = √c and that the parameter values are R = 4, discount factor ß = 1/3, and π = 2/5 A) How much do type-1 agents and type-2 agents consume in periods 1 and 2 under autarky, i.e., if there are no banks, insurance companies, or markets? What is the ex-ante expected utility that they derive in this scenario? B) How much do type-1 agents and type-2 agents consume in periods 1 and 2 in the "good" banking equilibrium? What is the ex-ante expected utility that they derive in this scenario? C) How many agents are able to execute their claims in period 1 (i.e., withdraw the maximum amount they have been promised) in the bank run equilibrium?In the special case when asset returns are independently identically distributed (IID) through time, how is the dynamic problem different from the buy-and-hold problem over the entire investment horizon?
- Hi there, I need help solving a problem and am unsure how to go about solving the question. It is a practive question from a textbook and am trying to understand it further. I need a bit more help solving 1 a) and b). I have already obtained the values of the expected return at t = 0 and the expected utilities at t = 0 for both scenarios (direct investing) and (depositing with the bank). Thanks Here is the question: Consider the basic setup of the Diamond-Dybvig (1983) model. Specifically, thereare three periods, denoted t = 0, 1, 2, a single consumption good, and an illiquidinvestment opportunity that pays gross return 1.1 if liquidated at t = 1, or grossreturn 2.2 if liquidated at t = 2. There are 30 people in the economy, each endowed with 1 unit of the consumptiongood at t = 0. At t = 1, exactly 11 will randomly realize that they need to consumeat t = 1 (the early consumers), the remaining 19 people will need to consume at t = 2(the late consumers). The utility derived from…Consider the Diamond-Dybvig model of bank runs utility function is given by U(c) = √c and that the parameter values are R = 4, discount factor ß = 1/3, and π = 2/5 A) How much do type-1 agents and type-2 agents consume in periods 1 and 2 under autarky, i.e., if there are no banks, insurance companies, or markets? What is the ex-ante expected utility that they derive in this scenario? How much do type-1 agents and type-2 agents consume in periods 1 and 2 in the "good" banking equilibrium? What is the ex-ante expected utility that they derive in this scenario? How many agents are able to execute their claims in period 1 (i.e., withdraw the maximum amount they have been promised) in the bank run equilibrium?Enumerate THREE reasons as to why expected utility of wealth mignt be equally good or even a better measure than expected wealth in evaluating investment opportunities.(maximum of tiwo sentences per reason)