Answer:
To make your answers easier to read and you dont have to use complete sentences.
Explanation:
Answer:
a. What is the expected value of his investment?
b. Should he invest the $10,000 in the stock market if he is risk neutral?
- If the investor is risk neutral, then he pays little attention to market risk, therefore, he/she should invest because the expected value is higher than the investment.
c. Is the decision clear-cut if he is risk averse?
- If the investor is risk averse, it means that he/she is afraid of market risk and likes to make decisions that involve the least possible risk. In this case, the possibility of losing money is not that large (in my opinion) and the expected value is relatively high, but a risk averse investor would probably prefer an investment that yields a lower rate but is more secure, e.g. US securities.
Explanation:
total investment $10,000
- if economy improves = 0.30 x $15,000 = $4,500
- if economy remains the same = 0.40 x $10,000 = $4,000
- if economy deteriorates = 0.30 x $8,000 = $2,400
total expected value = $10,900
Answer:
r=2.9%
Explanation:;
The person real income is the income which has been adjusted for inflation and can be calculated using the below formula:
(1+r)(1+i)=(1+n)
r= real income increase%=?
n=nominal income increase%=5%
i=price level increase%=2%
(1+r)(1+2%)=(1+5%)
1+r=(1+5%)/(1+2%)
1+r=1.029
r=1.029-1
r=0.029
r=0.029*100=2.9%
Answer:
b. Less is produced
Explanation:
The Principle of diminishing returns to capital states that as more unit of capital is added, a point will be reached where a decline in the marginal product will be encountered.
This simply means that for every additional unit of capital invested in the business, a less than proportionate increase is seen, this simply means that there will be a decrease in marginal productivity.