Question: Suppose investor utility function is u(c) = In (c), and the time discount for patience is 0.98. There are two states of the world after

Suppose investor utility function is u(c) = In (c), and the time discount for patience is 0.98. There are two states of the world after COVID-19 with equal probability, in good state of the world, consumption increase by 8%, in bad state of the world consumption decrease by 5%. What should the risk free rate be? And if we have an asset that pays 100 in good state and 60 in bad state, what's the price of the asset?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

| Ashley Williams opened Ashley's Maids Cleaning Service on July 1, 2017. During July, the com- pany completed the following transactions. July 1 Invested $14,000 cash in the business. 1 Purchased a...

Consider an economy where there is uncertainty about the future. In particular, at the current date t all agents are unsure which of the 3 possible states (wl,w2,W3) will mate- rialize at date t + 1....

ANswer all the questions correctly. Task 01. 3 An Anticipated Output Shock [30 points] Consider a two-period small open endowment economy populated by a large number of households with preferences...

This question applies to parts 1-10. It contains drop-down multiple choice and numerical questions. Consider a world in which there are only two dates: 0 and 1. At date 1 there are three possible...

Problem 04. 1. Supreme Cola is a supplier of fountain equipment to restaurants, bars and cafeterias. The fountain equipment is manufactured at their York PA plant site. A national distribution center...

Question one. 3 An Anticipated Output Shock [30 points] Consider a two-period small open endowment economy populated by a large number of households with preferences described by the lifetime utility...

Suppose you have a risk-aversion coefficient of 3.0, and utility function of, U = E[r] A02, that uses your estimate of annual arithmetic returns (APR) and variance. Which index would you invest in? 2...

I have these Economics questions,please tell me how to do it: 1 Grossman Model (35 points) Consider a simple model of a person making decisions about their health over 2 periods during the worldwide...

Answer, the attached questions precisely. 1) Suppose that Lisa consumes two goods, bread (represented by x) and cheese (represented by y). Suppose that your utility function is: U(x.y) = xy 4 [1]....

The disk shown moves in the xy plane. Knowing that (vA)y = ?? 7 m/s, (vB)x = ??7.4m/s, and (vC)x = ??1.4 m/s, determine (a) The angular velocity of the disk, (b) The velocity of point B. A 600 mm

Matthew is redecorating his apartment. The amount of utility he gets from chairs and couches is listed in the table to the right, where each number represents how much utility (in utils) he receives...

The major advantage of using weighted average to calculate equivalent units of production in a process cost system is: Simplicity Accuracy Required by generally accepted accounting principles All of...

10) For a bond that pays cash interest (i.e., not a zero coupon bond), YTM is (a) always equal to the coupon rate (b) always equal to the current yield (c) is always less than the coupon rate (d) can...

1. What are your creative strengths?

What metaphors might describe how we work together?

7. I understand that victims of my outbursts will remember my accusatory statements and name-calling long after I have calmed down.