Problem 2. Suppose you are given the following information: Price Expected Payoff E (R) States 1 2 3 Probability 0.05 0.7 0.25 Asset A ("stock") 0.5 3 6 Asset B ("corporate bond") 0.5 1 1 Asset C ("gold") 5 3 1 Risk-free asset 1 1 1 Consumption 4 12 20 1 1 1 State 1 is a deep recession such as the Great Depression, state 2 is normal times, and state 3 is a boom. (a) Assume the utility function is u (2) = log (x). Fill in the table and discuss briefly. (b) We could also price asset C by no arbitrage given the prices of A, B, and the risk-free asset. Does this yield the same results? Explain. (c) Redo question (a), but now assuming that the utility function is u (2) 2. How do you interpret the differences in results? = Problem 2. Suppose you are given the following information: Price Expected Payoff E (R) States 1 2 3 Probability 0.05 0.7 0.25 Asset A ("stock") 0.5 3 6 Asset B ("corporate bond") 0.5 1 1 Asset C ("gold") 5 3 1 Risk-free asset 1 1 1 Consumption 4 12 20 1 1 1 State 1 is a deep recession such as the Great Depression, state 2 is normal times, and state 3 is a boom. (a) Assume the utility function is u (2) = log (x). Fill in the table and discuss briefly. (b) We could also price asset C by no arbitrage given the prices of A, B, and the risk-free asset. Does this yield the same results? Explain. (c) Redo question (a), but now assuming that the utility function is u (2) 2. How do you interpret the differences in results? =