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Chapter 21: Q.2 (page 483)

Which of the following individuals would you expect to have a high level of economic rent, and which would you expect to have a low level of economic rent? Explain why for each.

Short Answer

Expert verified

Xin began playing the violin as a young prodigy and has progressed to become one of the world's most outstanding performing violinists after years of practise.

Step by step solution

01

Introduction

Emily dropped out of high school at the age of 17 and has worked as a fast-food waitress for several years.

02

Explanation

Demetrius holds a Ph.D. in financial economics and is one of a small group of professionals that specialise in valuing very complicated assets traded on bond markets.

03

Explanation

Xin began playing the violin as a young prodigy, and after years of refinement, she is now considered one of the world's most gifted performing violinists.

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Most popular questions from this chapter

Do you suppose that the degree of randomness in the stock prices indicated by the random walk theory has increased or decreased since early 2007? Explain your reasoning.

Take a look at Figure 21-2. Explain why the figure implies that if the amount of accounting profit were to shrink to zero while the normal rate of return on investment remained unchanged, economic profit necessarily would become negative.

If administrators of government pension funds for public employees were to discover in a future yes that they had used a discount rate that was too high, who would end up having to ensure payment of promised pensions?

Suppose that you are tryang to dectoe whether to spend \(1,000 on stocks issued by WildWeb or on bonds issued by the same company. There is a 50 percent chance that the value of the stock will rise to S2,200 at the end of the year and a 50 percent chance that the stock will be worthless at the end of the year. The bonds promise an interest rate of 20 percent per year, and it is certain that the bonds and interest will be repaid at the end of the year.

a. Assuming that your time horizon is exactly one year, will you choose the stocks or the bonds?

b. By how much is your expected end-of-year wealth reduced if you make the wrong choice?

c. Suppose the odds of success improve for WildWebi Now there is a 60 percent chance that the value of the stock will be \)2,200 at year's end and only a 40 percent chance that it will be worthless, Should you now choose the stocks or the bonds?

d. By how much did your expected end-of-year wealth rise as a result of the improved outlook for WidWeb?

Which of the following individuals would you expect to have a high level of economic rent, and which would you expect to have a low level of economic rent? Explain why for each.

a. Bob has a highly specialized medical skill shared by very few individuals.

b. Sally has never attended school. She is 25 years old and is an internationally known supermodel.

c. Tim is a high school teacher and sells insurance part-time.
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