4. In the interest of prudent diversification, an investor wishes to have his $100 of wealth...

 

Transcribed Image Text:

4. In the interest of prudent diversification, an investor wishes to have his $100 of wealth invested as $50 in the Canadian economy, $30 in the U.S. economy, and $20 in the English economy. Although he can purchase the shares of firms that are based in Canada, the U.S and England, it happens that each of these firms conducts some of its operations through foreign subsidiaries. In particular, the Canadian based firm (C) has 75% of its operations in Canada but 25% in the U.S., the U.S. based firm (U) has 85% of its operations in the U.S. but 15% in England, and the England based firm (E) has 50% of its operations in England but 30% in Canada and 20% in the U.S.. The three functions are: .75C +.3E =50, .25C + .85U +.2E = 30, .15U + .5E=20 The problem for the investor is to determine the proper amounts to invest in each of these three firms to achieve his desired investment in the three economies. Use matrix inversion to solve for the amount that he should invest in each firm. 5. Use Cramer's Rule to solve the problem that is presented in question # 4. 4. In the interest of prudent diversification, an investor wishes to have his $100 of wealth invested as $50 in the Canadian economy, $30 in the U.S. economy, and $20 in the English economy. Although he can purchase the shares of firms that are based in Canada, the U.S and England, it happens that each of these firms conducts some of its operations through foreign subsidiaries. In particular, the Canadian based firm (C) has 75% of its operations in Canada but 25% in the U.S., the U.S. based firm (U) has 85% of its operations in the U.S. but 15% in England, and the England based firm (E) has 50% of its operations in England but 30% in Canada and 20% in the U.S.. The three functions are: .75C +.3E =50, .25C + .85U +.2E = 30, .15U + .5E=20 The problem for the investor is to determine the proper amounts to invest in each of these three firms to achieve his desired investment in the three economies. Use matrix inversion to solve for the amount that he should invest in each firm. 5. Use Cramer's Rule to solve the problem that is presented in question # 4.

Answer rating: 100% (QA)

A 075C 03E 50 025c 085u 02E 30 O150 05 20 ... View the full answer