Suppose that you currently hold 4 shares of Google stock and 2 shares of Microsoft stock....
Suppose that you currently hold 4 shares of Google stock and 2 shares of Microsoft stock. Initially both prices are $1 per share, but then the price of Google stock suddenly doubles to $2 per share. Suppose that your preferences are Cobb-Douglas, u(x, y) = xy. Find the optimal portfolio choices under the original prices and the new prices. Show how much of the change in your portfolio (i.e. the change in demand for both goods) is due to pure substitution, pure income, and endowment income effects. (please don't use LaGrange)
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Suppose that you currently hold 4 shares of Google stock and 2
shares of Microsoft stock....
2. Consider the Cobb-Douglas utility function u(x,y) = x2y2. Let the budget 1, where pr, py...
2. Consider the Cobb-Douglas utility function u(x,y) = x2y2. Let the budget 1, where pr, py are the prices and I denotes the constraint be prx + pyy income. (a) Write the Lagrangian for this utility maximization problem. (b) Solve the first-order conditions to find the demand functions for both good a and good y. [Hint: Your results should only depend on the pa- rameters pa, Py, I.] (c) In the optimal consumption bundle, how much money is spend on...
magine that you are holding 6,100 shares of stock, currently selling at $80 per share. You...
magine that you are holding 6,100 shares of stock, currently selling at $80 per share. You are ready to sell the shares but would prefer to put off the sale until next year due to tax reasons. If you continue to hold the shares until January, however, you face the risk that the stock will drop in value before year-end. You decide to use a collar to limit downside risk without laying out a good deal of additional funds. January...
Imagine that you are holding 5,200 shares of stock, currently selling at $35 per share. You...
Imagine that you are holding 5,200 shares of stock, currently selling at $35 per share. You are ready to sell the shares but would prefer to put off the sale until next year due to tax reasons. If you continue to hold the shares until January, however, you face the risk that the stock will drop in value before year-end. You decide to use a collar to limit downside risk without laying out a good deal of additional funds. January...
Suppose you have short position in 100 shares of Microsoft stock, ticker MSFT. You plan to...
Suppose you have short position in 100 shares of Microsoft stock, ticker MSFT. You plan to close out the position in July 2018 and want to limit the cost of the closeout to no more than $95 per share. You do not want to use a forward contract. a) What option would you purchase to guarantee this outcome? b) How much would it cost? Explain how you got your answer.
Suppose you buy 100 shares of Google stock which has a current price of $1,265.13 a...
Suppose you buy 100 shares of Google stock which has a current price of $1,265.13 a share. You want to ensure that you do not lose more than $200 a share. Which of the following option strategies would allow you to do this? A. A covered call B. A naked call C. A protective put D. You cannot ensure that you will not have losses with stocks Suppose I buy 100 shares of AMD and want to limit my losses...
6 Imagine that you are holding 5,000 shares of stock, currently selling at $40 per share....
6 Imagine that you are holding 5,000 shares of stock, currently selling at $40 per share. You are ready to sell the shares but would prefer to put off the sale until next year due to tax reasons. If you continue to hold the shares until January, however, you face the risk that the stock will drop in value before year-end. You decide to use a collar to limit downside risk without laying out a good deal of additional funds....
Suppose you buy 100 shares of Google stock which has a current price of $1,265.13 a...
Suppose you buy 100 shares of Google stock which has a current price of $1,265.13 a share. You want to ensure that you do not lose more than $200 a share. Which of the following option strategies would allow you to do this? A. A covered call B. A naked call C. A protective put D. You cannot ensure that you will not have losses with stocks
2. Capital Tax: In our two period consumption-savings model, suppose that positive interest income in period...
2. Capital Tax: In our two period consumption-savings model, suppose that positive interest income in period 2 is taxed at rate t. Assume that Ao -0, the individual has positive endowment in both periods, and nominal prices for the good remain the same despite the ax (a) Write down the budget constraints in each period and obtain an algebraic expression for his life-time budget constraint. (b) Suppose that at the optimal choice, the representative individual is choosing not to save...
Problem 15-8 Price Dilution [LO3] Nemesis, Inc., has 215,000 shares of stock outstanding. Each share is worth $81, so the company's market value of equity is $17,415,000. Suppose the firm iss...
Problem 15-8 Price Dilution [LO3] Nemesis, Inc., has 215,000 shares of stock outstanding. Each share is worth $81, so the company's market value of equity is $17,415,000. Suppose the firm issues 48,000 nev shares at the following prices: $81, $75, and $69. What will be the ex-rights price and the effect of each of these alternative offering prices on the existing price per share? (Leave no cells blank; if there is no effect select "No change" from the dropdown and...
Problem 15-8 Price Dilution [LO3] 2 Nemesis, Inc., has 235,000 shares of stock outstanding. Each share...
Problem 15-8 Price Dilution [LO3] 2 Nemesis, Inc., has 235,000 shares of stock outstanding. Each share is worth $85, so the company's market value of equity is $19,975,000. Suppose the firm issues 56,000 new shares at the following prices: $85, $79, and $73. 01:53:13 What will be the ex-rights price and the effect of each of these alternative offering prices on the existing price per share? (Leave no cells blank; if there is no effect select "No change" from the...
2. Consider the Cobb-Douglas utility function u(x,y) = x2y2. Let the budget 1, where pr, py are the prices and I denotes the constraint be prx + pyy income. (a) Write the Lagrangian for this utility maximization problem. (b) Solve the first-order conditions to find the demand functions for both good a and good y. [Hint: Your results should only depend on the pa- rameters pa, Py, I.] (c) In the optimal consumption bundle, how much money is spend on...
magine that you are holding 6,100 shares of stock, currently selling at $80 per share. You are ready to sell the shares but would prefer to put off the sale until next year due to tax reasons. If you continue to hold the shares until January, however, you face the risk that the stock will drop in value before year-end. You decide to use a collar to limit downside risk without laying out a good deal of additional funds. January...
6 Imagine that you are holding 5,000 shares of stock, currently selling at $40 per share. You are ready to sell the shares but would prefer to put off the sale until next year due to tax reasons. If you continue to hold the shares until January, however, you face the risk that the stock will drop in value before year-end. You decide to use a collar to limit downside risk without laying out a good deal of additional funds....
2. Capital Tax: In our two period consumption-savings model, suppose that positive interest income in period 2 is taxed at rate t. Assume that Ao -0, the individual has positive endowment in both periods, and nominal prices for the good remain the same despite the ax (a) Write down the budget constraints in each period and obtain an algebraic expression for his life-time budget constraint. (b) Suppose that at the optimal choice, the representative individual is choosing not to save...
Problem 15-8 Price Dilution [LO3] Nemesis, Inc., has 215,000 shares of stock outstanding. Each share is worth $81, so the company's market value of equity is $17,415,000. Suppose the firm issues 48,000 nev shares at the following prices: $81, $75, and $69. What will be the ex-rights price and the effect of each of these alternative offering prices on the existing price per share? (Leave no cells blank; if there is no effect select "No change" from the dropdown and...
Problem 15-8 Price Dilution [LO3] 2 Nemesis, Inc., has 235,000 shares of stock outstanding. Each share is worth $85, so the company's market value of equity is $19,975,000. Suppose the firm issues 56,000 new shares at the following prices: $85, $79, and $73. 01:53:13 What will be the ex-rights price and the effect of each of these alternative offering prices on the existing price per share? (Leave no cells blank; if there is no effect select "No change" from the...
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