Explain your answer

Question 2 [20 marks] For each of the statements below, state whether it is True or False, justifying your answer: a. In a one-period model with dates today and tomorrow, a riskless asset is one whose payoff tomorrow is known with certainty. b. Consider the consumption CAPM model we have discussed in class. The risk-free return does not depend on investors' time preferences. c. Consider the economy with two investors and two assets, as we discussed in class, and denote with the ratio of the prices for asset 1 and 2, respectively. If, at this price ratio, there is excess supply for asset 1, then the equilibrium price ratio is higher. d. The annual log true return of a stock is i.i.d. normally distributed with mean and variance 0.06 and 0.24, respectively. You want to write a 2-period binomial model to price a derivative that expires in 4 months and whose payoffs depend on the price of this stock. In this model, the high per-period return for the stock (i.e., Ry in the notation used in class) is 1.324. Question 2 [20 marks] For each of the statements below, state whether it is True or False, justifying your answer: a. In a one-period model with dates today and tomorrow, a riskless asset is one whose payoff tomorrow is known with certainty. b. Consider the consumption CAPM model we have discussed in class. The risk-free return does not depend on investors' time preferences. c. Consider the economy with two investors and two assets, as we discussed in class, and denote with the ratio of the prices for asset 1 and 2, respectively. If, at this price ratio, there is excess supply for asset 1, then the equilibrium price ratio is higher. d. The annual log true return of a stock is i.i.d. normally distributed with mean and variance 0.06 and 0.24, respectively. You want to write a 2-period binomial model to price a derivative that expires in 4 months and whose payoffs depend on the price of this stock. In this model, the high per-period return for the stock (i.e., Ry in the notation used in class) is 1.324