ECS3708 ASSEMMENT 2 SEMESTER 1 2024

BMZ ACADEMY




BMZ ACADEMY

@061 262 1185/068 053 8213/0717 513 144




BMZ ACADEMY 061 262 1185/068 053 8213/0717 513 144

, BMZ ACADEMY


Question 1

Suppose that the consumer has a Cobb Douglas utility function:

𝑈(𝑋1 , 𝑋2 ) = 𝛼𝑙𝑛𝑋1 + 𝛽𝑙𝑛𝑋2

Determine the marginal rate of substitution of 𝑋1 for 𝑋2. (4)

α
𝑀𝑈𝑋1 =
𝑋1

β
𝑀𝑈𝑋2 =
X2

𝑀𝑈𝑋1 α 𝑋2
𝑀𝑅𝑆𝑋1𝑋2 = =
𝑀𝑈𝑋2 β 𝑋1


Question 2

Suppose a share in Company A is forecasted to be R11 in the next period. If a share
similar to Company A is paying a rate of return of 10%, what must be the current price
of the share in Company A (5)

FV = 11

Rate = 10%

𝑃𝑉 = 𝐹𝑉(1 + 𝑟)−1

11
=
1,1

= 𝑅10

Therefore, the current value = R10


BMZ ACADEMY 061 262 1185/068 053 8213/0717 513 144
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