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help in solving these queries. Under one particular term structure model: f(t.D) = 0.030 -)+0.0601-2 01(1-4)) Sketch a graph of /(t,7) as a function of

help in solving these queries.

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Under one particular term structure model: f(t.D) = 0.030 -)+0.0601-2 01(1-4)) Sketch a graph of /(t,7) as a function of 7, and derive expressions for B(t.) and R(, T ) .Colin's preferences can be modelled by the utility function such that: U'(w) =3-2w. (w>0). (i) Determine the range of values over which this utility function can be satisfactorily applied. [1] (ii) Explain how Colin's holdings of risky assets will change as his wealth decreases. [3] (iii) Which of the following investments will he choose to maximise his expected utility? Investment A Investment B Investment C outcome probability outcome probability outcome probability 0.1 0.3 0 0.3 0.2 0.45 0.3 0.4 0.2 0.2 0.3 0. 1 0.5 0.3 0.9 0.5 0.4 0.45 [3] [Total 7]

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