Two Period Economy Assignment | Homework For You
March 18th, 2020
- Consider a two period economy with a risk free asset yielding a net return r>0 in period 2 and an infinitely large number of risky assets each paying 1 pounds with probability p and 0 pounds with probability 1-p in period 2. Suppose that the realized return of each asset is independent of the return of the other assets, that investors are risk averse, and that the CAPM holds. Then,
- All risky assets have the same price equal to p/(1+r)
- Each risky asset is priced as to yield an expected gross return than 1+r
- The price of any risky asset in the first period is larger than P/(1+r）to reflect investors risk aversion
- D. The price of any risky asset in the first period is larger than P/(1+r) to reflect systemic risk. Get Finance homework help today
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