ECON 4400 Midterm: F10_Midterm_B_Answers.pdf
Document Summary
Write your name and student number at the top of this page. Each question answered is worth 10 points, the total is 40 points. Be clear what formulas you use to arrive at a solution, the actual numerical answers are not important. 12%? (e) assume capital markets are imperfect and consider two individuals a, b. A is more patient of the two: a(cid:146)s inter-temporal utility function puts greater weight on future consumption, relative to b(cid:146)s utility function. Evaluate the following claim: in such setting, if b implements an investment project, a always implements it, too. (a) true. This is the separation property we went over in class. (b) not true. There is no unique interest rate so pv is not even properly de(cid:133)ned under imperfect. (c) false. You only invest in anything if expected return beats rate of return available to you in (cid:133)nancial markets, which is the interest rate (possibly plus some risk premium).
