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Consider a risk - averse invest or with the power preferences ( where denotes the risk aver - sion magnitude ) and an initial fund
Consider a riskaverse invest or with the power preferences where denotes the risk aver
sion magnitude and an initial fund value of at date The investment
envir onment offers two alternatives to the investor including: i a safe asset with a fixed
riskfree rate per invested unit between dat es and ; and ii common
equity share of a private company. The equity return involves risk depending on
the future company's performance. Consider that the company's dividend per share value
summarises the performance and follows a Normal distribution with for
any future date
Q Assume that the investor intends to invest all of their fund value where the fraction
is allocated to the risky investment and the remaining is allocated to the
riskfree investment such that Derive the pricing expres
sion for the common equity price per share according to the first fundamental
asset pricing equation. Denote all additional terms you used and define the stochastic
discount fact or in this context. page
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