Consider an exchange economy with three dates {t=0, 1, 2} and three agents {A, B, C} with utility functions: UA CAO + (1-1A)(CA1+ CA2) UB=CBO+CB1+ (1-/B)CB2 Uc Cco+ CC1+Cc₂ The agents have the following endowments. Agent A owns a bond at t=0 and obtains w at t=1 with probability (1-QA). Agent B owns w at t=0 and obtains w at t=2 with probability (1-QB). Agent C owns w at t=1 and nothing at the other dates. Furthermore, the bond pays off x at t=2. The risk free rate and repo rate are zero. Suppose x is either 0 or 100 with equal probability and w=50. Suppose IA-IB QA=QB-1 for questions (a) to (c).

Consider an exchange economy with three dates {t=0, 1, 2} and three agents {A, B, C} with utility functions: UA CAO + (1-1A)(CA1+ CA2) UB=CBO+CB1+ (1-/B)CB2 Uc Cco+ CC1+Cc₂ The agents have the following endowments. Agent A owns a bond at t=0 and obtains w at t=1 with probability (1-QA). Agent B owns w at t=0 and obtains w at t=2 with probability (1-QB). Agent C owns w at t=1 and nothing at the other dates. Furthermore, the bond pays off x at t=2. The risk free rate and repo rate are zero. Suppose x is either 0 or 100 with equal probability and w=50. Suppose IA-IB QA=QB-1 for questions (a) to (c).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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