Consider a representative consumer, whose utility can be summarized by the lifetime utility function Ct Bt...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Consider a representative consumer, whose utility can be summarized by the lifetime utility function Ct Bt -0 1-0 t=0 Stocks held at the beginning of period t pay a dividend Dt. Suppose that the dividends are taxed at a rate tp, i.e. for every dollar of dividends an individual only recieves (1 - tp) dollars. Denoting stock prices by St, and the asset position of the individual at the beginning of period t by at-1, (a) Write down the budget constraint for the representative consumer in period t. (b) Write down the sequential Lagrangian, and derive the first order con- ditions for consumption at time t, time t + 1 and the choice of asset position at (c) Derive the equation for stock prices St (d) Suppose there is an announcement in 2018 that the taxes on dividends are going to increase in 2019. What does your answer to part (c) predict will be the effect on stock prices in 2017? Consider a representative consumer, whose utility can be summarized by the lifetime utility function Ct Bt -0 1-0 t=0 Stocks held at the beginning of period t pay a dividend Dt. Suppose that the dividends are taxed at a rate tp, i.e. for every dollar of dividends an individual only recieves (1 - tp) dollars. Denoting stock prices by St, and the asset position of the individual at the beginning of period t by at-1, (a) Write down the budget constraint for the representative consumer in period t. (b) Write down the sequential Lagrangian, and derive the first order con- ditions for consumption at time t, time t + 1 and the choice of asset position at (c) Derive the equation for stock prices St (d) Suppose there is an announcement in 2018 that the taxes on dividends are going to increase in 2019. What does your answer to part (c) predict will be the effect on stock prices in 2017?
Expert Answer:
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
Students also viewed these accounting questions
-
What does your answer to the previous question tell you about the ease or difficulty of entry into the automobile industry?
-
Health care spending (S) can be summarized by the following equation: (a) Identify three factors that might lead to the rapid growth of health care spending. (b) Compare health care spending to...
-
Clusters of documents can be summarized by finding the top terms (words) for the documents in the cluster, e.g., by taking the most frequent k terms, where k is a constant, say 10, or by taking all...
-
Evaluate triple integrate (x^2+y^2+z^2)dx dy dz where R denotes the region bounded by x = 0, y = 0, z = 0 and x + y + z = a, (a > 0)
-
A recent financial magazine indicated that the airline industry has poor financial flexibility. What is meant by financial flexibility, and why is it important?
-
Let r 1 = coefficient of correlation between n pairs of values (Y i , X i ) and r 2 = coefficient of correlation between n pairs of values (aX i + b, cY i + d), where a, b, c, and d are constants....
-
An Ontario law permits a game of chance called bingo when it is offered by specific not-for-profit institutions, including churches. Reverend Matthew Pappas, the priest of a new parish in suburban...
-
The cash records of Downs Company show the following. For July: 1. The June 30 bank reconciliation indicated that deposits in transit total $580. During July, the general ledger account Cash shows...
-
E7-15 (Algo) Analyzing and Interpreting the Inventory Turnover Ratio [LO 7-5] Clark & Scott Corporation is the biggest snowmobile manufacturer in the world. It reported the following amounts in its...
-
Contrast the Islamic family with the socialist-law family.
-
Assume that in 2021, Ander and Bravo went on a fishing trip with Thom's Trout Fishing Guide Company. Jethro, an employee of Thom's Trout Fishing, was the guide. The trip did not go well. Before they...
-
What are some developmental and lifespan areas of interest to keep in mind when caring for a person with Autism?
-
College seemed so far out of my reach for some time until I decided to go back to school to pursue my career. Mental illness has played a major part in my life for quite some time and want to learn...
-
Alex Morgan, a 25-year-old female presents herself to the release of information (ROI) clerk at Hendrick Hospital in Dallas with a request to access her birth records. She was adopted as a baby and...
-
Describe your experience with presenting data and what methods did you use. Compare and contrast the methods you have used and provide one tip for effective data presentation ?
-
Discuss your experience with the elderly who you think are aging successfully. What do you think characterizes the daily lives of elderly who are aging successfully?
-
Employee Satisfaction Strategy Alpha from CAPM (monthly)= Beta from CAPM= R-Squared= Alpha from 3-factor Model (monthly)= Beta on Market Factor= Beta on size Factor= Beta on Value Factor= R-Squared=...
-
White Bolder Investments (WBI) You are an intern working for WBI, a large investment advisory services in Sydney. Among other regular customers, WBI has been providing advisory services for Jumbo...
-
Did 9/11 Change Tastes?: In another textbook, the argument is made that consumer tastes over airline miles traveled and other goods changed as a result of the tragic events of September 11, 2001. A:...
-
A large number of patients who suffer from degenerative kidney disease ultimately require a new kidney in order to survive. Healthy individuals have two kidneys but usually can live a normal life...
-
For a long period, the U.S. government focused its attempts to meet housing needs among the poor through public housing programs. Eligible families could get on waiting lists to apply for an...
-
Why do shareholders in an acquired company agree to the dilution of their shareholdings after completion of the merger?
-
Why are the legal procedures related to mergers so onerous?
-
Where does the creation of value lie in a merger?
Study smarter with the SolutionInn App