Suppose that you consider the consumption preferences of an investor with initial endowment equal to 40,000$....

 

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Suppose that you consider the consumption preferences of an investor with initial endowment equal to 40,000$. The preferences of this investor are characterized by the following indifference curve: U= C₁ C₁ the slope of which is equal to: dc1/dc0 = - c1/ c0. 0 Moreover, the available investment opportunity set is expressed through the following equation: c1= g(c0) = 150 sqrt(40,000 - CO). The risk free interest rate is equal to 10%. Which is the optimal financing decision? Explain your answer analytically. [50%] Suppose that you consider the consumption preferences of an investor with initial endowment equal to 40,000$. The preferences of this investor are characterized by the following indifference curve: U= C₁ C₁ the slope of which is equal to: dc1/dc0 = - c1/ c0. 0 Moreover, the available investment opportunity set is expressed through the following equation: c1= g(c0) = 150 sqrt(40,000 - CO). The risk free interest rate is equal to 10%. Which is the optimal financing decision? Explain your answer analytically. [50%]

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the optimal financing decision for the investor would be to invest their entire endowment of 40000 in the available investment opportunity Heres why T... View the full answer