15 votes
Accepted

Solow Model: Steady State v Balanced Growth Path

This is when the attempt at accuracy creates confusion and misunderstanding. Back in the day, growth models were not incorporating technological progress, and led to a long-run equilibrium ...
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9 votes

What determines whether slavery is economically efficient in industrialized/modern era economies?

Necessary Caveats When Discussing Slavery: First before tackling this question it is important to note that this issue is broad and complex. This is because there is no single 'slavery'. For example, ...
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  • 41.6k
7 votes
Accepted

How to convert daily returns to annual returns?

So, let me start with your second question. No you cannot multiply by 365. You could approximate it by $$\log(\text{Annual Return})=365*\log(\text{Daily Return}),$$ but for what you are doing, it ...
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  • 1,951
5 votes

Solow Model: Steady State v Balanced Growth Path

Following the conversation with user @denesp at the comments of my previous answer, I have to clarify the following: the usual graphical device we use related to the basic Solow growth model (see for ...
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4 votes

Piketty's Return on Capital

Although I'm not sure that Piketty ever directly discusses the exact definition of $r$, he does make it clear indirectly. On page 52 of the hardcover English-language edition of his book, Piketty ...
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4 votes

Capital in a credit frictions model

The paper is assuming that some form of "law of large numbers" (LLN) applies for the continuum. The expected value of capital for an individual agent is $$\mathbb{E}[R\cdot 1_{R\geq R^*}]=\int_{R^*}^1 ...
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4 votes
Accepted

Relationship between capital and decreasing marginal prodcutivity

The claim is not that capital decreases marginal productivity, but that the marginal productivity of capital is decreasing. (See "diminishing returns.") That is, the first "unit" ...
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  • 26.1k
4 votes

If return rises by same % as inflation rate rises, then perfect inflation hedge?

Not 100% sure of what you need help with, but ill throw some things here and if it doesn't help tell me and ill delete this answer. Since you asked to "mathematically show why this is the case&...
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  • 159
3 votes
Accepted

Intertemporal budget constraint notion

At time $(t-1)$, the investor buys some risk free bond, $B_{t-1}$ and some risky asset $X_{t-1}$ at price $P_{t-1}$, such that the budget constraint holds, i.e. $$ W_{t-1} = B_{t-1} + P_{t-1}X_{t-1} $...
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3 votes

Marginal Product of Capital in the Solow Model

According to your calculations MPK is not increasing in $K$. The Solow model assumes $0< \alpha < 1$, thus $\alpha - 1 < 0$ and $K^{\alpha - 1}$ is decreasing in $K$.
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  • 26.1k
3 votes
Accepted

Solow Model, Growth rate of K/L and Y/L in steady state

If $Y = C \cdot X$ where $C$ is constant and $\frac{\dot{X}}{X} = g$ then we can solve for $\frac{\dot{Y}}{Y}$ as follows: $$ \frac{d}{dt} Y = \frac{d}{dt} C \cdot X = C \cdot \frac{dX}{dt} = C \cdot \...
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  • 15.9k
2 votes

How to relate real rate of return on capital to bond interest rate: Lagrangian

Ignoring the expectations operator, your lagrangean has two mistakes: first the constraint is per-period so it is also multiplied by the discount factor. Second, the way you have wrote the time ...
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2 votes
Accepted

Calculating the growth rate of a stock over a year with imperfect information

I don't think that on yearly returns, a day more or less matters too much. In the unlikely case it actually does, you could interpolate the final day. A first approximation would be the average over ...
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  • 10.4k
2 votes

How does an UHN individual leverage their wealth?

Leveraging is done with debt. Most high net worth individuals are debt free and even if they take out loans, it is to reduce taxes. However, high net worth individuals normally have their wealth in a ...
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2 votes

Stock return predictability. Why do papers continue to use Granger Causality tests

Because the papers which use these methods are not properly refereed. That's why you should read papers published in high impact factor journals.
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  • 1,950
2 votes

ROI and stock rates

I agree with Dan it is likely a typo. Some definitions (using your notations) Investment : $f_0$ Investment one year later : $f_1$ Net income : $f_1 - f_0$ ROI: $-1 + \frac{f_1}{f_0}$ It follows ...
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  • 1,395
2 votes

Solving a problem using CAPM and capital structure theory

@chsk gives the correct answer if the firm has to raise funds using the equity market and the cost of those funds is the same as that for the firm. However, I would recommend that this firm do the ...
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  • 15.9k
2 votes

Why are break-even and shut down points based on average cost?

My students also frequently make the mistake of thinking they "understand the basic idea of" something, when what they actually know is a formula to calculate some aspect of it. Average costs being ...
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  • 26.1k
2 votes
Accepted

Why are break-even and shut down points based on average cost?

When you are finding the break even point, you are looking for a price-point. The price is essentially the average (and marginal) revenue. Suppose price of good $x$ is $p$. Revenue = $p * x$. ...
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  • 5,404
2 votes

What's the economic argument (if any) for taxing dividends as ordinary income?

Dividends have to be taxed as income, as otherwise people can incorporate, have their wages taxed as revenue for the corporation, and then pay themselves a dividend. (Canada adjusts taxes on dividends ...
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1 vote

Why do different product-markets record different rates of return if the assumption of competitive markets hold?

Edit: after OP made changes to his question and clarification this answer became less relevant. I am still keeping it here because OP said some parts of it and references are still useful. There are ...
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  • 41.6k
1 vote

Why does the Market Risk Premium increase in times of crisis?

Let's first clarify one concept. Risk premium is the extra expected return that an investor demands (not of the market, here is the key) over the return of risk-free asset (usually government bonds). ...
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  • 199
1 vote

Why does the Market Risk Premium increase in times of crisis?

Risk premium is the excess expected return of the market over that of the risk-free asset. (There is no "(expected) risk premium".) It is a property of the expected returns of two assets. It is an ...
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  • 2,559
1 vote

Solving a problem using CAPM and capital structure theory

Assuming that the project has the same beta as the firm's existing assets -- and assuming I'm remembering what I learned in my introductory CorpFin class correctly --, you are indeed right. The ...
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  • 263
1 vote
Accepted

Leveraged Return on Investment

I am not sure I understand your question. In most projects, the bulk of the investment is a down payment, so the ROI is meant to capture precisely that. I.e. the average return that the money you put ...
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  • 4,138
1 vote
Accepted

How to calculate cost of equity?

Your formula is wrong. The derivation for the cost of equity $r_E$ is actually: $r_A = r_D(1-t)\frac{D}{V}+r_E \frac{E}{V}\\ r_E \frac{E}{V} = r_A - r_D(1-t)\frac{D}{V}\\ r_E = r_A \frac{V}{E} - ...
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1 vote

intuitive interpretation of the marginal return/productivity of capital being less than one

Several thoughts in this area: 1) Capital stock lasts over time. I may trade 1 euro for 1 unit of capital. This capital returns 0.01 euros every period forever. It pays itself off eventually. 2) ...
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1 vote

Should housing be considered a form of capital for the purpose of capital gains taxation?

Should housing be considered a form of capital for the purpose of capital gains taxation? Chamley-Judd's proposition aims at avoid[ing] unlimited growth in tax compounding as the horizon extends. ...
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1 vote
Accepted

Should housing be considered a form of capital for the purpose of capital gains taxation?

I think there are a few different ways one can go about examining the topic and general question you bring up. For that reason, I'd like to highlight that this isn't my primary field, and so my answer ...
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  • 1,370
1 vote

Determining the capital return from the investment in dynamic firms and their growth

I put the article through translate and it appears that this is the (translated) section you are talking about: "To achieve this selection of 50 nuggets, the Tech Tour did not scan only the continent,...
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