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Can you help with this problem? Thanks! Problem 2. A Risky Asset (2 points). The world lasts two periods. Danube.com is a large internet- based
Can you help with this problem? Thanks!
Problem 2. A Risky Asset (2 points). The world lasts two periods. Danube.com is a large internet- based retailer. At t = 2, it will pay a dividend of 150pershareiftheeconomyisdoingwelland50 per share if the economy is doing poorly. The representative household will consume 40, 000iftheeconomyisdoingwelland30,000 if the economy is doing poorly. Its preferences are given by u(c) = 1. The interest rate is 10%. Use formula (8.2.5) to determine at what price the representative household would be indifferent with respect to buying shares in Danube.com, for the following values of o: 0.5,1,2 and 10. ExplainStep by Step Solution
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