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Assume the following state space: Let the spot state prices, qi=qiBt,t+1 and qk=qkBt,t+2, be given by: qi=[qi=1qi=2]=[0.430.5], and qk=qk=1qk=2qk=3qk=4=0.160.180.180.18, respectively. If the payoffs on an
Assume the following state space: Let the spot state prices, qi=qiBt,t+1 and qk=qkBt,t+2, be given by: qi=[qi=1qi=2]=[0.430.5], and qk=qk=1qk=2qk=3qk=4=0.160.180.180.18, respectively. If the payoffs on an asset at t+1 are given by the vector: xt+1=[42] and the corresponding payoffs at t+2 are given by the vector: xt+2=11876 then, showing all the steps in your calculations, you are asked to: (a) Compute the spot value of the asset, St, using the Time-State Preference approach (b) Compute the spot value of the asset, St, using the Rational Expectations approach (c) Explain why the values derived in (a) and (b) are equal. Assume the following state space: Let the spot state prices, qi=qiBt,t+1 and qk=qkBt,t+2, be given by: qi=[qi=1qi=2]=[0.430.5], and qk=qk=1qk=2qk=3qk=4=0.160.180.180.18, respectively. If the payoffs on an asset at t+1 are given by the vector: xt+1=[42] and the corresponding payoffs at t+2 are given by the vector: xt+2=11876 then, showing all the steps in your calculations, you are asked to: (a) Compute the spot value of the asset, St, using the Time-State Preference approach (b) Compute the spot value of the asset, St, using the Rational Expectations approach (c) Explain why the values derived in (a) and (b) are equal
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