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  #321  
Old 01-09-2020, 05:06 PM
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Havenít decided which one to take 7 or 9. Any suggestions?
My suggestion is to spend less time choosing which one and more time studying.
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  #322  
Old 01-09-2020, 05:16 PM
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Originally Posted by Abomb7894 View Post
My best thoughts:



1) CC's chapter summary has a similar definition as BKM, so I'd assume it's just a bit too shorthand in the high level summary. It is a risk free rate, just specifically the risk free rate you'd accept to match the utility (ie, st dev = 0).



2) I think the idea here is that if your expected return is greater than the market's, you should borrow money to invest and make additional profit. Meanwhile, if the return is less than the market, you're better off lending the money for income instead.
I'm not even sure what you're trying to say in 2).

Where you wind up on the CAL doesn't have anything to do with relative expected returns -- it's all about the investor's risk tolerance/appetite. A completely risk-averse investor will choose the risk-free asset. Most investors will end up with a mix of the risky portfolio and the risk-free asset (lending). Some investors who have low risk aversion will be willing to borrow at a lower rate in order to take on more risk for the promise of higher returns.

This is where the utility function comes in, taking into consideration both expected returns and risk.
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  #323  
Old 01-15-2020, 11:22 PM
Abomb7894 Abomb7894 is offline
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Originally Posted by Marcie View Post
I'm not even sure what you're trying to say in 2).

Where you wind up on the CAL doesn't have anything to do with relative expected returns -- it's all about the investor's risk tolerance/appetite. A completely risk-averse investor will choose the risk-free asset. Most investors will end up with a mix of the risky portfolio and the risk-free asset (lending). Some investors who have low risk aversion will be willing to borrow at a lower rate in order to take on more risk for the promise of higher returns.

This is where the utility function comes in, taking into consideration both expected returns and risk.
Isn't the y axis E(r) though? That's where I was going with that.
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  #324  
Old 01-15-2020, 11:49 PM
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Originally Posted by Abomb7894 View Post
Isn't the y axis E(r) though? That's where I was going with that.
Yes, the y axis is E(r), but where are you getting the "market" return? And what do you mean by "if your expected return is greater than the market's"?

Last edited by Marcie; 01-15-2020 at 11:51 PM.. Reason: Better direct quote
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  #325  
Old 01-16-2020, 12:27 PM
yerromnitsuj yerromnitsuj is offline
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Man, studying for these things was so much easier earlier in my career before actually having real responsibility and accountability at work. I'm so far behind where I want to be. Good thing there's a ways to go. Not that work is going to get any lighter.
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  #326  
Old 01-16-2020, 12:30 PM
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Plenty of time! Gotta keep the momentum
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  #327  
Old 01-16-2020, 12:33 PM
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Reading Kreps again. This paper still doesn't make sense to me.
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  #328  
Old 01-16-2020, 02:00 PM
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Reading Kreps again. This paper still doesn't make sense to me.
Do the CC questions? I remember her questions clear things up a lot for this paper
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  #329  
Old 01-16-2020, 02:04 PM
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Man, studying for these things was so much easier earlier in my career before actually having real responsibility and accountability at work. I'm so far behind where I want to be. Good thing there's a ways to go. Not that work is going to get any lighter.
so hard
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  #330  
Old 01-16-2020, 02:31 PM
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Do the CC questions? I remember her questions clear things up a lot for this paper

I had done all the RF last sitting, I haven't done CC in it yet. Still in section B for CC. There are so many CC questions.
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