..Solve the following questions.,,
Suppose that the risk-free rate is 3% and that the corresponding optimal risky portfolio has an expected return of 15% and a standard deviation of 20%. Consider an investor with preferences represented by the utility function U = E(r) 0.5Acz, where A = 2. (a) What fraction of her wealth should she invest in the risky portfolio? (b) Should she invest more or less fraction of her wealth in the optimal risky portfolio if she is more riskaverse? Why? (c) Should she invest more or less traction of her wealth in the optimal risky portfolio if the optimal risky portfolio offers a higher expected return (but the same standard deviation)? Why? (d) If the risk-free rate is higher, what would you expect the optimal risky portfolio to differ 'om the current one (for 3% riskfree rate) in terms of expected return and standard deviation? (e) Now suppose that the investor faces a higher riskfree rate when borrowing (because you are facing more borrowing constraints than the government, or people won't allow you to borrow at Instructions: 1. All the questions should be answered with a graph 2. Graphs should be made in excel and pasted in the word 3. Explanation must be handwritten not typed 4. The assignment should be very neatly done or else it will not be considered for evaluation. Q1. Explain law of demand and Supply with two separate graphs. Q2. What is Contraction and Expansion for Demand and Supply. Explain with a Demand schedule and graph. Q3. Consider Product X is Car. With help of graph explain how demand of car will be affected by increase in the price of petrol. Q4. Consider product X is Toyota car. Explain with a graph how the demand of Yaris car will be affected Increase in the Price of Maa % Q5. Differentiate between Price and Non price determinant supply. Explain 111;; answer with help of Supply schedule and graphs. Problem 2: (20 points) The following tables give results for an annual data set for 162 farms overs the years 1993 to 1998. The variables are: MILK: milk output in liters per year COWS: number of cows LAND: land area, constant for each farm FEED: feed input Table 1 gives output of a pooled regression of log(MILK) on an intercept (C), log(COWS), log(LAND) and log(FEED). Table 2 gives output from a fixed effects regression where the estimated fixed effects are not reported, and Table 3 gives results from a random effects estimation: Table 1: Pooled Estimation Dep. Variable: LOG(MILK) Method: Least Squares Sample (adjusted): 1 972 Included observations: 972 after adjusting endpoints variable Coefficient Std. Error t-Statistics Prob. C 6,976457 0,040584 171,9009 0,0000 LOG(COWS) 0,600228 0,023564 25,49150 0.0000 LOG(LAND) 0,020668 0,014120 1,463763 0,1436 LOG(FEED) 0,455605 0,013712 33,22704 0,0000 R-squared 0,956152 Mean dep. var. 11,71364 Adjusted R-squared 0,956017 S.D. dep. var. 0,607083 S.E. of regression 0,127319 Sum squared resid 15,69139 F-statistics 7036,159 Durbin-Watson stat 0,573676 Table 2: Fixed Effects Estimation Dep. Variable: LOG(MILK) Econometrics - Exam A Method: Pooled Least Squares Sample: 1993 1998 Included Observations: 6 Number of cross-sections used: 162 Total panel (balanced) observations: 972 variable Coefficient Std. Error t-Statistics Prob. LOG(COWS) 0,674705 0,032031 21,06433 0,0000 LOG (FEED) 0,396393 0,014944 26,52504 0.0000 fixed effects R-squared 0.986294 Mean dep. var. 11,71364 Adjusted R-squared 0,983529 S.D. dep. var. 0,607083 S.E. of regression 0,077914 Sum squared resid 4,905013 F-statistics 58142,43 Durbin-Watson stat 1,717733
