For each of the statements below, state whether it is True or False, justifying your answer:

1. Consider the consumption CAPM model we have discussed in class. The more impatient investors are, the higher the risk-free return will be.

2. In an Edgeworth Box representation of an economy with two in- vestors and two assets, a Pareto Optimal allocation is always one where the Marginal Rates of Substitution of the two investors are equal.

3. Consider using the binomial model to price a derivative. If the

   risk-free return is constant and equal to Rf in each period and

   the derivative has terminal payoff CT in T periods, then we can

   always calculate its time-0 no-arbitrage price as 1 EQ [C ], where RfT 0 T

   Q denotes the risk-neutral probability measure.

4. A self-financing strategy is a strategy that costs nothing.