It is exactly 24 hours before Lauren's physics final. She has an economics final directly after the physics final and has no time to study in between. Lauren wants to be a physicist, so she places more weight on her physics test score. Her utility function is given by u(p, e) = 0.6 ln(p) + 0.4 ln(e) where p is the score on the physics final and e is the score on the economics final. Although she cares more about physics, she is better at economics; for each hour spent studying economics she will increase her score by 3 points, but her physics score will only increase by 2 points for every hour spent studying physics. Studying zero hours results in a score of zero on both subjects (although ln(0) is not defined, assume her utility for a score of zero is negative infinity). (a) (5 points) What constraints does Lauren face in her test score maximization problem? (b) (5 points) How many hours should Lauren optimally spend studying physics? How many hours studying economics? Calculate a monthly payment on the following mortgage. Annual interest rate is r = 0.06, mortgage term is 30 years, loan size S = 200,0 in months, then apply the formula). b) Jill would like to buy a car that costs S=20,000. The dealer offers her a 60-month loan with 0 down and a monthly payment p = 421. Calculate the annual interest rate on this loan using Excel. Take the following steps: 1. Generate a column of 40 monthly interest rates, with r = {0.001,0.002,...,0.040), say column A, starting with Al. 2. Use the geometric series formula to express the present value of payments through p, T and rm, where I'm is the monthly interest rate. Plug in the numeric value for p, 7 and put this formula into cell B1. Have the formula refer to the interest rate from cell A1. Select B1:B100 and press CTRL+D. This will copy the formula and generate a column of present values that correspond to different monthly interest rate. Pick an interest rate from a row whose cell B value corresponds most closely to S. 3. Convert the monthly interest rate that you found on step 2 into annual using the compounding formula..

A measure of how well the returns of two risky assets move together is the: a) Range. b) Covariance. c) Semi-variance. d) Standard deviation. 172. A portfolio manager adds a new stock to a portfolio. The stock has the same standard deviation as the existing portfolio but a correlation coefficient with the existing portfolio that is less than + 1. What effect will adding the new stock have on the standard deviation of the revised portfolio? a) The standard deviation will increase b) The standard deviation will decrease c) The standard deviation will be unaffected d) Impossible to say without more information 173. An investor currently owns Brown Corp. stock and is thinking of adding either James Corp. or Beta Corp. stock to his holdings. All three stocks offer the same expected return and same total risk. The correlation of returns between Brown stock and James stock is - 0.50 and the correlation between Brown stock and Beta stock is +.50. The risk of the portfolio would: a) Decline more if you bought Beta Co. b) Decline more if you bought James Co. c) Decrease if you bought James Co. but increase if you bought Beta Co.

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. Which of the following statements is FALSE? a) Positive covariance means that asset returns move together. b) A zero covariance implies there is no relationship between two variables. c) If two assets have perfect negative correlation, it is impossible to reduce the portfolio's overall variance. d) The covariance is equal to the correlation coefficient times the standard deviation of the first stock times the standard deviation of the second stock. 165. What is the portfolio's standard deviation if you put 25% of your money into stock A which has a standard deviation of returns of 15% and the rest into stock B which has a standard deviation of returns of 10%? The correlation coefficient between the returns of the two stocks is +.75. a) 11.25% b) 10.60% c) 12.40% d) 15.00% 166. What is the standard deviation of the portfolio in the question above, if the correlation coefficient is now -.75? a) 2.8%. b) 4.2%. c) 5.3%. d) 10.6%.

Country A has an industry M using the production function Y = K0.3 0.7, where Y is the output of industry M, K is the capital input and L is the labor input. Find the marginal product of labor (MPL) and the marginal product of capital (MPK). Show diminishing MPL and MPK. 2. Country A has an industry N using the production function Y = K0.6L0.4, where Y is the output of industry N, K is the capital input and L is the labor input. Find the marginal rate of technical substitution (MRTS) between capital and labor. State the cost minimization condition (with the MRTS and the price of capital (r) and the price of labor (w)). 3. Which industry is labor intensive, industry M from Q1 or industry N from Q2? (Hint: Use the cost minimization condition in both industries.) 4. A US firm is considering whether to locate its new plant in China or in the US. This firm's production function is q = L 0.5L05 where q is the output, and L, and Lu, are the number of skilled labor hours and unskilled labor hours. Suppose that the hourly wage rates are w; = 15 and w = 5 in China and w, = 20 and w, 10 in the US (all in USDs). Find L., Lu, and the cost of producing q = 100 in China and in the US. Assume that there is no transportation costs or tariffs, where should the firm locate its new plant? 5. The inverse demand curve of a firm is p = 100 - Q. The firm's cost curve is C(Q) = 10+5Q. What is the profit-maximizing solution to Q? How does your answer change if C(Q) = 100+5Q?

1.Consider the following Solow model with production in intensive form:y = k2/5where depreciation (d)= 0.05, labour force growth ()= 0.02, savings rate (s)=0.25, and technological progress () =0. Find the steady state values of k, y, c and r. 2.Suppose a country grew at 8.4 % per year and that a recent growth accounting study showed the Solow residual accounted for only 1.2 % per year of this growth performance (this growth-accounting analysis used weights of 0.33 for labour and 0.67 for capital). a.The country's labour force grew by 2.6 % per year during this period. What can you conclude about the annual growth rate of the capital stock?b.What fraction of the overall 8.4 percent growth rate is attributable to capital investment?3.Given a production function , if , and : 4.a. Calculate the steady-state level of capital and output.5.b. Does the above production function exhibit constant returns to scale, or does it exhibit diminishing marginal returns? Explain, and define the difference between these two concepts.4.Consider a simple Solow model as developed by Jones in Chapter 5. Assume the country is at its steady state when it receives a one-time transfer of technology which causes it's A to increase (this is a one-time and permanent increase). Based on this information:a.Use the Solow diagram to analyze what happens to the economy over time.b.Draw a graph showing what happens to the country's output over time. What happens to output per person in the long-run?c.Draw a graphs showing what happens to the growth rate of output over-time. Explain.d.What do these results imply about the effect of technology transfer on economic growth?

0. Your company has decided that its capital budget during the coming year will be $20 million. Its optimal capital structure is 60 percent equity and 40 percent debt. Its earnings before interest and taxes (EBIT) are projected to be $34.667 million for the year. The company has $200 million of assets; its average interest rate on outstanding debt is 10 percent; and its tax rate is 40 percent. If the company follows the residual dividend policy and maintains the same capital structure, what will its dividend payout ratio be? a. 15% b. 20% c. 25% d. 30% e. 35%

. Brock Brothers wants to maintain its capital structure that consists of 30 percent debt and 70 percent equity. The company forecasts that its net income this year will be $1,000,000. The company follows a residual dividend policy and anticipates a dividend payout ratio of 40 percent. What is the size of the company's capital budget? a. $ 600,000 b. $ 857,143 c. $1,000,000 d. $1,428,571 e. $2,000,000 162. The following facts apply to your company: Target capital structure: 50% debt; 50% equity. EBIT: $200 million. Assets: $500 million. Tax rate: 40%. Cost of new and old debt: 8%. Based on the residual dividend policy, the payout ratio is 60 percent. How large (in millions of dollars) will the capital budget be? a. $ 43.2 b. $ 50.0 c. $ 64.8 d. $ 86.4 e. $108.0 163. Makeover Inc. believes that at its current stock price of $16.00 the firm is undervalued in the market. Makeover plans to repurchase 2.4 million of its 20 million shares outstanding. The firm's managers expect that they can repurchase the entire 2.4 million shares at the expected equilibrium price after repurchase. The firm's current earnings are $44 million. If management's assumptions hold, what is the expected per-share market price after repurchase? a. $16.00 b. $17.26 c. $18.18 d. $20.00 e. $24.4

Growth and DevelopmentAssignment 2The due date for this assignment is Wednesday October 27.1. According to the Solow model, the steady state capital-labor ratiokis determined bythe equation:(n+)k=f(k).Letf(k)=Ak(Cobb-Douglas). The parameterrepresents capital's share of theGDP, so let=1/3.Sincerepresents the annual rate of depreciation, let=0.10.From the data in the textbook, the average population growth rate appears to ben=0.02and the average saving rate around=0.20.Using the equation above,find a value forAsuch that the steady state level of output is equal to one; i.e.,y=A(k)1/3=1.0.2. Now, withAdetermined above, compute different values foryby varying the parame-tersnand(over reasonable ranges) and report your results in a table. answer every question.