Finance 30220
Solutions to Practice Midterm #1
1) Suppose that the return on a 90-day T-Bill is .6% while the total 10 year return on a 10 year
T-Bond is 22%. Which of these two assets has the better annual return?
We need to make these returns comparable
Finance 30210
Problem Set #10
1)
a) Calculate the expected value and standard deviations of the two gambles.
E ( A) = .70($100 ) + .30( $200 ) = $10
SD( A) = .70($100 $10 ) + .30( $200 $10 ) = $137
2
2
E ( A) = .40($325) + .60( $200 ) = $10
SD( A) = .40($
Finance 30210
Problem Set #9
1) The two most common paradigms for strategic interaction betweens firms are
cournot competition and Bertrand competition. Briefly describe the assumptions
underlying the two models. What industries would you classify as Bert
Finance 30210
Problem Set #8
1) Consider the familiar Rock, Paper, Scissors game. Two players indicate either
Rock, Paper, or Scissors simultaneously. The winner is determined by
Rock crushes scissors
Paper covers rock
Scissors cut paper
Indicate a -1 if
Finance 30210
Problem Set #7
1) Suppose that you have an industry with 5 firms. Below are the market shares of each
firm:
Firm
1
2
3
4
5
Market Share
35
25
15
15
10
a) Calculate the concentration ratios for this industry.
CR
1
2
3
4
5
35
60 ( = 35+25)
75
Finance 30210
Problem Set #5
1) For each of the following demand curves, calculate the price elasticity of demand
and the income elasticity of demand.
a) Q = 800 4 P + 2 I
Price Elasticity: p =
P
%Q Q P
=
= 4
Q
Q
%P P
Income Elasticity: I =
I
%Q Q I
Finance 30210
Problem Set #3
1) According to a study by Niccie McKay, the average cost per patient day for nursing
homes in the US is
C = A .16 X + .00137 X 2
We want to minimize the cost per patient by our choice of patient days (X).
cfw_
min A .16 X + .
Finance 30210
Problem Set #2
1) Suppose you are thinking about starting a lawn service in your area. The lawn service market
can be considered perfectly competitive. You own a $200 lawnmower. You have a fixed
cost of $90 (maintenance costs on the mower, e
Finance 30210
Problem Set #1
1) Suppose that you are currently leasing your office space for $130,000 per year. You
have the opportunity to buy the facility for $1.8M. With a 10% down payment, you
can get a mortgage for 8% interest per year. You can pay f