2. Lucas tree economy: Consider the one-tree economy we studied in class with equilibrium stochastic discount factor M0,t = etvt, vt N(t,2t), > 0, > 0. Let us assume that the time-0 dividend (fruit) is Y0 = 1.
(a) Consider a so-called digital option, which pays out 1 at the given time, T > 0, if (and only if) the price of the economys stock (tree) pt > Z, for some Z > 0. Thus, if pT > Z, the owner of the option gets 1 at time T, and if pT < Z, the owner gets nothing. Denote the price at time t of the option by Dt. Using what you know about SDFs, derive an expression for the value of the option at time 0, D0.
(b) Now consider an asset that pays pT at time T. What is the value of this asset at time 0?

3. Equity premium puzzle: Consider a one-tree economy with expected log growth rate per year 2
of E[ln(Yt+1) ln(Yt)] = 1%, and annual variance of V ar[ln(Yt+1) ln(Yt)] = (2%) . The representative agent has CRRA utility, with risk aversion coefficient = 5 and personal discount rate = 2% per year.
(a) What is the expected return on the market in this economy?
(b) What is the risk-free rate in this economy?
(c) How well do these numbers match with historical returns in the stock market and bond markets?

Designing Business Intelligence Reports:
In this assignment you will learn how to create new reports that will be used by different people in the organization. Business intelligence reports are very important communication tools in managerial decision-making and are targeted to variety of audiences that include accountants, finance professionals, marketers, salespeople, product managers, among others. The relevance, utility and timeliness of presented information are critical for effective and efficient decision-making. This exercise will provide you with a hands-on experience in understanding and building information-rich business reports.
Business Case:
You are the analyst at the business intelligence department of a retail, marketing and auditing consulting company and your new client is a Global Toys Corporation, one of the worlds largest toy manufacturers with operations across the globe. Few weeks ago, the company appointed a new Marketing Director, and in a recent presentation he announced a new strategy for some of the best-selling toy products. You are asked to lead in developing a case study (a visual story line) that will help the executive team for better and faster understanding of the presented information. In the new directors keynote, he wants to go over some facts about current business performance and then use that data to make the case for a new strategy. The director is not sure what type of data/numbers he will ultimately be using in his presentation, and therefore, he asked you to make the business report as flexible as possible in order to allow for further explorations, e.g., filtering, slicing and dicing.
Important Points to note:
As a minimum, explore the data to produce a report for senior management along the following lines.
Business locations or sites, products, sales, and customers.
Create a BI report with at least four sections but not more than six sections.
This BI report should include key facts about the companys performance on a global and regional level. These facts should include financial, marketing
related data, and or efficient use of resources.
Decide on the appropriate visualization tool/type to use based on the data you
choose, and information you intend to portray. How will this chart be perceived by a non-technical user? What questions may he/she ask and what answer(s) could she get with it?
You may consider a report along the following lines: Analyse the sites
Analyse the Products
Analyse the Sales Evolution
Analyse Customer Satisfaction
Once done, submit your report as a single PDF file to me via QMplus by uploading your work as a single file via the assignment link.
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Instructions for report creation:
Navigate through the folders to access the file labelled, INSIGHT_TOY_COMPANY_2017.
High Level Marking Scheme