Asset Pricing: Key
1. For a three-year bond:
$90 =
$100
(1 + yt )3
(1)
It then follows that yt = 3.57%.
2. This would represent a decline in the demand for Treasury Bonds. Simple supply and
demand then suggests that the price of bonds would decrease. Beca
Solutions: Problem Set #4 (1) Taking the derivative of the objective function with respect to 1 gives the first order condition: -2
i=1 n
^ (yi - 1 ) = 0.
Cleaning this expression up a bit, we obtain
n i=1
^ yi - n1 = 0
which implies
1 n ^ 1 = y yi . n i=
Solutions: Problem Set #3 (4.1) Throughout this exercise, let T S denote the test score and CS denote class size. (a) We seek E(T S|CS = 22): E(T S|CS = 22) = 1 + 222 = 520.4 22(5.82) = 392.36
(b) Note that (in terms of the population regression function)
Empirical Business Cycles: Key
1. Qualitatively, the model does well. As seen in the empirical estimation, increases in aggregate
demand result in more ination and else output. The specic shape of the New Keynesian
models IRFs, however, are not too consis
Solutions: Problem Set #1
(1) The following table gives the joint probability distribution p(X, Y ) of random variables X and Y .
Y 1 2 3 4
1 .02 .03 .00 .09
X 2 .04 .18 .02 .18
3 .12 .04 .10 .18
Determine the following:
(a) Do the entries of the table sa
Solutions: Problem Set #5 (1) (a)To calculate the 95 percent condence interval, we should use critical values from the t1002 = t98 table. Looking this up in your textbook (page 645) we nd the appropriate critical value to be 1.99. Therefore, our 95 percen
Solutions: Problem Set #6 (1) The regression output is provided in the other file. The coefficient estimates are the same as presented in class. (2) The coefficient estimates are provided in the other file. These are the same as reported in the textbook.
Solutions: Problem Set #7 (1) The regression output and STATA code are provided in the other file. (1b) To implement this test, we need to get the R2 values from both the restricted and unrestricted models. We see that
2 Ru = .889, 2 Rr = .570,
p = 1,
n =
Solutions: Problem Set #10 (1a) Mean-independence could be violated for a variety of reasons. First, highlymotivated students may be more likely to purchase computers. (They decide to purchase a computer, simply because they think it will give them an "ed
Solutions: Problem Set #8 (1) The regression output is provided in the other file. Increasing team batting average by, say, 10 points will lead to about 5 more wins per season. Hitting 10 more home runs in a season will lead to about 1.2 more wins in that