ECON 251: Financial Theory Problem Set 2
John Geanakoplos Spring 2012
Problem Set 2 Solutions
1. Let
1 U A (x1 , x2 ) = log x1 + 3 log x2
(eA , eA ) = (12, 12) 1 2 U B (x1 , x2 ) = log x1 + 1 log x2 2 (eB , eB ) = (27, 18) 1 2 where x1 represents the quan
ECON 251: Financial Theory
Professor: John Geanakoplos
TA: David Rappoport
Spring 2012
Yale University
Practice Problem Set #4
1. Let a 10year Treasury bond of face $100 pay a 12% annual coupon in sixmonth installments of $6 each (and $100 + $6 at age 1
ECON 251: Financial Theory Professor: John Geanakoplos TA: Kieran Walsh (1, 2, and 4) and Chris Fiore (3, 5, and 6)
Spring 2012 Yale University
Problem Set #10: Answer Key
1. Consider the following competitive economy: W A xA W B xB = = 1 A X1 A x + x 12
U.S. Social Security Crisis?
1
President Bush has strongly advocated reforming Social Security by introducing personal accounts Massive effort in 2005, including
State of the Union speech 2005 60day, 60city Presidential tour of US
As we fix Social Secu
Econ 251a John Geanakoplos
CAPM with Quadratic Utilities
1 ArrowDebreu Equilibrium
Given uncertainty about the future, Ken Arrow and Gerard Debreu (both members of the Cowles Foundation, both future Nobel Prize winners, though Debreu did not get promoted
Econ 251a Spring 2012 class at 201 WLH Problem Set 10
John Geanakoplos Due before or on April 24 in
1. Consider a competitive economy with two agents A and B with welfare functions: W A (x0 ; x1 ; x2 ; x3 ) = 1 1 2 1 x0 + x1 x 12 3 4000 1 1 1 1 2 + x2 x2
Financial Theory
file:/H:/econ251/econ251/content/transcripts/transcript11.html
Financial Theory: Lecture 11 Transcript
October 8, 2009< back
Professor John Geanakoplos: Okay, today we're going to talk a little bit more about Social Security. Social
Secur
ECON 251: Financial Theory Professor: John Geanakoplos TA: Kieran Walsh
Spring 2012 Yale University
Problem Set #5: Answer Key
1. Imagine that the one year rate today is 1%, the year one oneyear forward is 2%, and in general imagine that for 0 t 9, iF =
Economics 251a John Geanakoplos Spring 2012 Due February 14, 2012 Problem Set 4 1. (a) Let a 10year Treasury bond of face $100 pay a 10% annual coupon in sixmonth installments of $5 each (and $100 + $5 at age 10 years). (a) If annual interest rates are
Yield Curve Arbitrage
The most important prices in economics are the interest rates determining the relative prices of money now vs money later (or for real interest rates, goods now vs goods later). The driving force of economic progress is investment an
Econ 251a Due Thursday, March 29 Problem Set 7 1. The Red and Black card problem
John Geanakoplos Spring 2012
A pile of cards has 5 cards, 3 red and 2 black. You draw the cards sequentially. If you get a black card, you win $1. If you get a red card, you
ECON 251: Financial Theory Professor: John Geanakoplos TA: Bin Li
Spring 2012 Yale University
Problem Set #6: Answer Key
1. A fund's quarterly returns are independent. Its long run annual volatility is 64%. In the long run, what is its quarterly volatilit
ECON 251: Financial Theory Professor: John Geanakoplos TA: David Rappoport
Spring 2012 Yale University
Problem Set #4: Answer Key
1. Let a 10year Treasury bond of face $100 pay a 10% annual coupon in sixmonth installments of $5 each (and $100 + $5 at ag
February 7, 2012
Present Value, Yield and the Yield Curve


if interest rate is 5% and inflation is a constant 4%, then nominal interest rate
should be 5% + 4% = 9%
If the endowment drops by 25% or 6 billion of the 23 billion$ endowment,
what should you
Economics 251 Problem Set 2 Due in class, Tuesday January 31
John Geanakoplos Spring 2012
Problem Set 2
1. Let
1 U A (x1 ; x2 ) = log x1 + 3 log x2
(eA ; eA ) = (12; 12) 1 2 U B (x1 ; x2 ) = log x1 + 1 log x2 2 (eB ; eB ) = (27; 18) 1 2 where x1 represent
Economics 251a Spring 2012 Problem Set 6
John Geanakoplos Due Thursday March 22, 2012
1. A fund' quarterly returns are independent. It' long run annual volatility is s s 64%. In the long run, what is its quarterly volatilty? 2. Oklahoma and Miami play a s
Econ 251a Due Tuesday April 3
John Geanakoplos Spring 2012
Problem Set 8
1. Dynamic Mortgage Hedging: Consider a 3 year 100% rate mortage, with face value $140, and anual payments (as in the last problem set). (a) What is the annual payment? (b) What is t
1. Econ 251a Due Thursday, April 12 Problem Set 9 1. Default arbitrage
John Geanakoplos Spring 2012
Suppose the Unites States, Brazil and Argentina all issue $1 zeroes. The US has issued both a one and a two year zero, U S1 and U S2 , that sell for $0.8 a
Econ 251
Fall 2001
Mortgage Prepayments and Valuation 1 Mortgage Arithmetic
A mortgage is a promise backed by a house as collateral. There are records of mortgages as far back as 1000 BC in Babylon.
1.1
Amortizing Mortgages
Mortgages since the depression
Financial Theory
file:/H:/econ251/econ251/content/transcripts/transcript02.html
Financial Theory: Lecture 2 Transcript
September 8, 2009< back
Professor John Geanakoplos: So for those of you who weren't here yesterdayor, last class, first class, I'll
say
Financial Theory
file:/H:/econ251/econ251/content/transcripts/transcript24.html
Financial Theory: Lecture 24 Transcript
December 1, 2009< back
Professor John Geanakoplos: Anyhow, so today I'm going to try and wrap up a few loose ends. So I'm
going to try
file:/H:/econ251/econ251/content/sessions/lecture23.html
Open Yale Courses
ECON 251: Financial Theory
Lecture 23  The Mutual Fund Theorem and Covariance Pricing Theorems< previous session  next session >
Overview:
This lecture continues the analysis of
file:/H:/econ251/econ251/content/sessions/lecture22.html
Open Yale Courses
ECON 251: Financial Theory
Lecture 22  Risk Aversion and the Capital Asset Pricing Theorem
< previous session  next session >
Overview:
Until now we have ignored risk aversion. T
Financial Theory: Lecture 1 Transcript
September 3,
2009
< back
Professor John Geanakoplos: So anyway, the course I'm going to teach is called Financial Theory. I'm
going to teach an actual class. I'm going to spend the first half of the class talking abo