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Assume there exist a riskless asset with gross return R f and a risky asset with gross return R i . Derive the risky premium,

  1. Assume there exist a riskless asset with gross return Rf and a risky asset with gross return Ri. Derive the risky premium, E[Ri]-Rf in a stochastic discount factor model (a.k.a. consumption based asset pricing) and discuss what your result implies of the risk premium of a pro-cyclical risky-asset.

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