14. a) Explain what is meant by the Fisher Separation Theorem (FST). Graphically demonstrate FST for...

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14. a) Explain what is meant by the Fisher Separation Theorem (FST). Graphically demonstrate FST for the case where an individual ends up lending in financial markets. (40 marks) b) Graphically analyse the effect of an increase in the interest rate on the utility of lenders. Discuss whether or not the lenders are better off as a result of the interest rate rise. (30 marks) c) Critically evaluate the assumptions upon which the Fisher Separation Theorem is based and assess the extent to which these limit its usefulness in financial decision-making. (30 marks) 14. a) Explain what is meant by the Fisher Separation Theorem (FST). Graphically demonstrate FST for the case where an individual ends up lending in financial markets. (40 marks) b) Graphically analyse the effect of an increase in the interest rate on the utility of lenders. Discuss whether or not the lenders are better off as a result of the interest rate rise. (30 marks) c) Critically evaluate the assumptions upon which the Fisher Separation Theorem is based and assess the extent to which these limit its usefulness in financial decision-making. (30 marks)

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a The Fisher Separation Theorem FST is a financial economic concept that states that in a world with capital markets free of taxes transaction costs and uncertainty the investment decisions and financ... View the full answer