Question
Suppose that an investor has an initial endowment equal to $20,000. The interest rate is 20% The investment opportunity curve is determined by the following
Suppose that an investor has an initial endowment equal to $20,000. The interest rate is 20% The investment opportunity curve is determined by the following function: 1 = (0) = 240 (20,000 0)0.5. The average indifference curve is determined by the following equations: (0,1) = (0,1) = 0 1.
- Find the optimum consumption decision and explain in detail every step
- Find the optimum investment decision and explain in detail every step.
- What is the optimum financing decision? Are investment and financing decisions independent? Discuss your arguments in detail.
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