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CM2 chapter 2

Discussion in 'CM2' started by shdh, Mar 9, 2019.

  1. shdh

    shdh Ton up Member

    Hi,

    in Question 2.2 part 2 given in the back of chapter 2, colin is having an increasing ARA and RRA, but is written that he is having a decreasing ARA and RRA.

    can someone please tell me why so?

    Thanks,
    Shyam
     
    shdh, Mar 9, 2019
    #1
  2. Calm

    Calm Ton up Member

    That's because the question specifically asks for the effects of decreasing wealth. Colin having an increasing ARA and RRA is true when wealth is increasing.
     
    Calm, Mar 9, 2019
    #2
  3. shdh

    shdh Ton up Member

    So if wealth is decreasing and ARA and/or RRA is increasing then we have to increase our investment in risky assets?

    Wealth is decreasing, and ARA is increasing so shouldn't we decrease our investment in risky assets?

    By your comment i understand that when wealth is decreasing, then ARA will always decrease. is it so? if so then please do tell me why?
     
    shdh, Mar 9, 2019
    #3

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