Answer 3 (d) plz.

I. The Fisher Model An investor has an endowment of 300 in t = 0 and can invest in the following divisible, non-mutually-exclusive investment projects: Cash Outflow Cash Inflow in t=0 in t = 1 IP IP IP. IP 60 100 100 40 80 200 105 60 | 1. Calculate the returns of all investment projects and sort them in descending order of returns. 2. Assume for now that there is no capital market. (a) Draw the transformation curve T, based on the set of existing investment opportunities in a Co-C graph. (b) Show graphically that the optimal investment program is not independent of the consumption preferences of the investors. 3. Assume that there is a perfect and complete capital market and that investors can invest and borrow money at a unique interest rate of 20%. (a) Show how the introduction of the capital market extends the set of feasible consumption allocations. What is the slope of the new transformation curve TM? (b) Explain why investment and consumption decisions can now be separated. What does this imply for the net present value rule? (c) Calculate the NPVs of all investment projects. Interpret both intercepts of the transformation curve IM (d) The utility function of an investor is given by: U = Co XC - Derive a general expression for the slope of the associated indifference curves. - Determine the optimal consumption allocation for this investor analyti- cally. What financial transactions are necessary to implement this plan? 4. Assume the capital market is imperfect and allows deposits at a rate of 10% while borrowing costs 40%. Sketch the resulting transformation curve and explain how it affects investors' investment and consumption decisions. 1