Suppose you have $10.00 to spend on dinner. There are two possibilities: pizza at $2.00 a slice or hamburgers at $2.50 a piece. Construct an opportunity set algebraically and graphically. Add indifference curves according to your own individual taste.
Answer to relevant QuestionsUsing the two-period consumption model, solve the following problem. Assume you can lend and borrow at 5% and your income is $50 in each period. Derive the opportunity set and add your indifference curves. Assume that the average variance of return for an individual security is 50 and that the average covariance is 10. What is the expected variance of an equally weighted port folio of 5, 10, 20, 50, and 100 securities? Derive the expression for the location of all portfolios of two securities in expected return standard deviation space when the correlation between the two securities is -1. Monthly return data are presented below for each of three stocks and the S&P index (corrected for dividends) for a 12-month period. Calculate the following quantities: - Alpha for each stock - Beta for each stock - The ...Complete the procedure in Appendix A for reducing a general three-index model to a three-index model with orthogonal indexes.
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