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Consider an individual who lives for two periods either in the world of perfect credit markets or complete insurance markets. The time discount factor, ,
Consider an individual who lives for two periods either in the world of perfect credit markets or complete insurance markets. The time discount factor, , equals 1. Part I. The individual's endowment at date 0, y0, equals 8. At date 1, state 0, individual's endowment equals 10, whereas it equals 5 at date 1 state 1. States 0 and 1 happen with probability 0.6 and 0.4, respectively. (a) (2 points) Find E[~y1] and var[~y1]
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