Tutorial: Week 2
Tutorial questions
Q1. Develop the formula of IRR (
Q2. Develop the formula of IRR (
) for the case where T=1.
) for the case where T=2.
Solution
Recall that
t
T
1
1
NPV
( Rt Ct It )
ST 0
t 0 1
1
T
Q1. With T=1,
( R0 C0 I 0 )
Week 9 Tutorial Question
John derives utility from the market value (W) of his prime asset - a bungalow in Paradise
Beach - separately from his other utility-generating assets. His utility from the market value
of the bungalow is given by:
.
u W
He assess
Tutorial: Week 1
Tutorial questions
Q1. Develop the formula of IRR ( ) for the case where T=1.
Q2. Develop the formula of IRR ( ) for the case where T=2.
Solution
Recall that
t
T
1
1
NPV
=
( Rt Ct I t ) + =
ST 0
t =0 1 +
1+
T
Q1. With T=1,
( R0
Tutorial: Week 4
Two-period consumption and saving
Let,
u = C 0 0.5 + 0.9C10.5
y=
y=
$ 60, 000
0
1
r = 0.08 .
1. Prove that the optimality condition leads to:
2
0.45
C1*
(1 + r ) C0* .
=
0.5
From the optimality condition of equality between the MRS and
Solution of Exercise 1
Firm A invest every year 1,000,000 dollars on production capital. Its production capital
depreciates at a rate of 0.1 per annum. Its present production capital stock is 5,000,000
dollars. Use NI t K t K t 1 =I t K t 1 to compute
1.
School of Accounting, Economics and Finance
ECON331: Financial Economics
Subject Outline
6 credit points
Subject Information
Spring, 2015
Wollongong
On Campus
Lecture Information:
Wednesdays, 10:30 - 12:30, 38-G01
Pre-requisites: ECON111 and either ECON12
FINANCIAL ECONOMICS:
LECTURE NOTES
Prepared by
Amnon Levy, PhD (U.C. Berkeley)
Professor of Economics
University of Wollongong
Spring 2015
Some books for supplementary readings
Jan Mossin (1973), Theory of Financial Markets. Prentice-Hall: Englewood Cliff
Solution to In-Session Exam in ECON331 Spring 2015
Solution to Question 1
Note that
t
T
1
1
NPV
( Rt Ct It )
ST 0
t 0 1
1
T
With T=1,
( R0 C0 I 0 )
( R1 C1 I1 ) S1
0
1
( R1 C1 I1 ) S1 ( R0 C0 I 0 )(1 )
I C R S
1 1 1 1 1
R0 C0 I 0
.
Solution t
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