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In this problem please round your answers totwo decimalsand enter thecorrect sign(e.g., -123.98 or +45.76). Assume there are two periods (t=0 and t=1) and two
In this problem please round your answers totwo decimalsand enter thecorrect sign(e.g., -123.98 or +45.76).
Assume there are two periods (t=0 and t=1) and two possible states of the world at t=1 (i.e., s=2), with state 1 probability=1=0.35 and state 2 probability=2=0.65. An investor has a time-separable utility of wealth U(W) = 8 - W2, and an initial wealth of W0=100 Euros. There are two primitive assets pt1and pt2with the prices of P1=0.74 and P2=0.22.
What is the interest rate in this case?
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