w.-P1'Q The function P1 = pr P2 defines the price of an asset in period 1. The following explains notations in the above equation: P1 denotes the period-I price of the asset. In period 2, the asset price may be P2 with a probability of pr or zero with a probability of 1 pr. WI and w2 are one's wealth in periods I and 2 respectively, so WI, wz > O. Q is the quantity of the asset that one is willing to purchase at price Pl. Suppose pr = F, P2 = 4, and Q = 2. Answer the following questions. 1) 2) 3) 4) 2. 5) 6) 7) Simplify the expression of Pl. That is, express P1 in terms of WI and w2. Compute P1 when WI = 36, IV2 = 24. Other things being equal, how does WI affect Pl? Similarly, how does w2 affect P1 ? Assume WI = w2 = w. How does w influence P1 ? Approximate the following quantities, using the Taylor series expansion. eons. Note that e = 2.718. 1.0011000 The probability density function (pdf) of the standard normal distribution is f (x) = L e Approximate f (0.1), which is the density at x = 0.1. Note that v'fi 2.5.