IV. There are two dates, 1 and 2. There is a market for real bonds at date 1. One unit of bonds pays one unit of goods at date 2 without any risk. 1 The supply of bonds is determined by a simple relationship = 10, where is the supply and is the price of bonds. In the demand side, there is a unique buyer of bonds. The buyer owns 10 units of goods at date 1. At date 2 the buyer needs to pay a tax (to the government) at the rate 10% for the interest he earns from his investment on bonds.1 Independent of his date- 2 tax payment (and his date-1 investment), at date 2 the buyer faces two states that occur with equal probability: he receives one unit  of goods (from the government) at state 1 and two units of goods at state 2. If the buyer consumes 1 at date 1 and 2 at date 2, his utility (1 2) = ln 1 + ln 2. Derive the equilibrium price ?

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Okay here are the steps to solve this problem 1 Supply of bonds S 10P where S is supply a... View the full answer