Examen macrofinance
vraag 1:
a)Explain expected utility theorem: give the expected utility theorem and explain what all variables,…
mean
b)In the expected utility theorem the terms certainty equivalent and risk premium are important.
Explain them briefly and illustrate them graphically.
c) lottery 70% of getting 100 and 30% of getting –50. What are the CE and risk premium for a risk
averse agent with W= 10000 and RRA=2 (constant relative risk aversion)
d) Explain Allais paradox and give the underlying assumption which is violated
vraag 2:
a)Give the optimal solution for savings decisions. And explain this solution
b) what impacts the savings decision and say how it comes forward in the solution you got under a
c) explain the effect of an increase in uncertainty concerning the return of the investment
(substitution & precautinary savings effect). Explain which effect dominates if the agent has a crra of
2
d) the wealth increases with 1000 what is the impact of saving (increase/decrease/remains the same)
vraag 3:
a) Explain the concept of mutual fund theorem. Explain and make use of a graph maing use of the
terms expected return and standarddeviation