Explain these questions
The current price of a share of a particular stock listed on the New York Stock Exchange is $39. The following probability distribution shows how the price per share is expected to change over a three-month period: Stock Price Change ($) Probability 0.05 0.10 0.25 + 0.20 +2 0.20 +3 0.10 +4 0.10 a. Construct a spreadsheet simulation model that computes the value of the stock price in 3 months, 6 months, 9 months, and 12 months under the assumption that the change in stock price over any 3-month period is independent of the change in stock price over any other 3-month period. b. With the current price of $39 per share, simulate the price per share for the next four 3-month periods. What is the average stock price per share in 12 months? What is the standard deviation of the stock price in 12 months? C. Based on the model assumptions, what are the lowest and highest possible prices for this stock in 12 months? Based on your knowledge of the stock market, how valid do you think these prices are? Propose an alternative to modeling how stock prices evolve over 3-month periods.__J._____ 10. Suppose that the risk-free rate of interest is 0.07 and the expected rate of return on the market portfolio is 0.14. The standard deviation of the market portfolio is 0.12. (a) According to the CAPM, what is the eicient way to invest with an expected rate of return of 0.11? (b) What is the risk (standard deviation) of the portfolio in part (a)? Consider the market for electric cars where (inverse) demand for electric cars is described by P : 122 Q, vrl'rere Q denotes the number of electric cars demanded (in thousands) and P denotes the price per electric car. Manufacturing electric cars involves a xed cost of 2,000, while the marginal cost of production is 2. (a) Consider a monopolist producer of cars Green Motors. Find the quantity of electric cars produced, the price per electric car and the prot made by Green Motors. [6 marks] {b} Now suppose the car market is duopolistic, where Green Motors and its competitor m engage in Cournot competition. Both rms face the same costs. Describe Coun'rot competition and nd the market outcome in the Cournot equilibrium. Are consumers better off than in {a}? [14 marks] to} Suppose the cost of 2,000 reflects Research and Development (RED) costs to develop an electric car that cannot be recovered. Would your answer to {b} change? [5 marks] {d} The government offers Green Motors and m; a subsidy of 500 each. Does this benet consumers? [5 marks] A study conducted by Card and Krueger [1994) compared the employment of fast food restaurant workers in New Jersey and Pennsylvania a few months before and a few months after New Jersey passed a law increasing the minimum wage in that state. This was a "difference-in-differences\" study: they compared the change in employment in New Jersey restaurants before and after the date of New Jersey's minimum wage increase, with the change in employment during the same period in Pennsylvania. a. Explain why the authors compared the change in employment in both states, instead of just looking at the before-after change in employment in New Jersey, where the minimum wage was increased. How does collecting data on what happened in a neighboring state that did not increase the minimum wage help us understand the effects of New Jersey' 5 minimum wage? Card and Krueger found that employment in New Jersey's fast food industry increased relative to Pennsylvania's fast food industry after the increase in the minimum wage. Explain what the perfectly competititive labor markets theory would predict that would happen to employment when there is an increase in the minimum wage. Does Card and Krueger's nding support or contradict the theory? Explain at least one possible explanation for why the derence-in-dijferences strategy implemeted by Card and Krueger for estimating the effects of the minimum wage could be problematic
