1. (25 points) Consider a two-period economy. The consumer maximizes c1+E1c2. They have an initial endowment of w1. At time 1 , they can invest in a risky asset with price p1 and payoff v at time 2 . a) Write down the first order condition for the price of the risky asset, p1. Explain how the price of the asset depends on and w1. b) Suppose that the supply of the risky asset is a1=1, and that =0.9 and w1=10. Moreover, suppose that consumption c2 is either 4 or 9 and the payoff v is either 0 or 1 ; their joint distribution is Compute the asset price. c) Suppose now that the joint distribution is Compute the asset price. Compare this price with the one in the previous case and discuss the difference. 1. (25 points) Consider a two-period economy. The consumer maximizes c1+E1c2. They have an initial endowment of w1. At time 1 , they can invest in a risky asset with price p1 and payoff v at time 2 . a) Write down the first order condition for the price of the risky asset, p1. Explain how the price of the asset depends on and w1. b) Suppose that the supply of the risky asset is a1=1, and that =0.9 and w1=10. Moreover, suppose that consumption c2 is either 4 or 9 and the payoff v is either 0 or 1 ; their joint distribution is Compute the asset price. c) Suppose now that the joint distribution is Compute the asset price. Compare this price with the one in the previous case and discuss the difference