There is one period. Assume a representative agent with utility function U(ct) = αc_t − βc^2_tassume the following: α = 100, β = 1, and δ = 0.97. Consumption at t = 0 is C0 = 24. At t = 1 one of two states θ1 and θ2 eventuate with probability π1 = 0.5, and π2 = 0.5,respectively. There are two complex securities s^1 and s^2.s^1 has a payoff of 23 in θ1 and 27 in θ2.s^2 has a payoff of 20 in θ1 and 32 in θ2.What is the stochastic discount factor mt+1? hint: Recall mt+1 =δU′(ct+1)/U′(ct)
There is one period. Assume a representative agent with utility function U(ct) = αc_t − βc^2_tassume the following: α = 100, β = 1, and δ = 0.97. Consumption at t = 0 is C0 = 24. At t = 1 one of two states θ1 and θ2 eventuate with probability π1 = 0.5, and π2 = 0.5,respectively. There are two complex securities s^1 and s^2.s^1 has a payoff of 23 in θ1 and 27 in θ2.s^2 has a payoff of 20 in θ1 and 32 in θ2.What is the stochastic discount factor mt+1? hint: Recall mt+1 =δU′(ct+1)/U′(ct)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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There is one period. Assume a representative agent with utility function U(ct) = αc_t − βc^2_t
assume the following:
α = 100, β = 1, and δ = 0.97.
Consumption at t = 0 is C0 = 24.
At t = 1 one of two states θ1 and θ2 eventuate with probability π1 = 0.5, and π2 = 0.5,
respectively.
There are two complex securities s^1 and s^2.
s^1 has a payoff of 23 in θ1 and 27 in θ2.
s^2 has a payoff of 20 in θ1 and 32 in θ2.
What is the stochastic discount factor mt+1? hint: Recall mt+1 =δU′(ct+1)/U′(ct)
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