Homework answers / question archive / 1

1

Economics

Share With

1. An investor has a portfolio with 55% in a risk-free asset (A) with a return of 7% and the rest in a risky asset (B) with an expected return of 15% and a standard deviation of 12%. What are the expected return and standard deviation of the portfolio?

2.According to the permanent income hypothesis, how will the paths of borrowing and con- sumption change in response to: (a) A temporary decrease in income when it occurs. (b) A permanent decrease in income when it occurs. (c) Are the answers different if the changes in income are unanticipated, i.e. if they are 'news? Comment on the size of the marginal propensity to consume and the size of the multiplier