Question 2 Suppose there are 3 states of nature, they occur with probabilities {T1, 2, . and the state prices are 101.02.03 (a) Show that the price of an asset paying units of the consumption good in state s, for s 1, 2, 3, equals for some positive numbersm,m2, ma that are the same for all assets. [5 marks] (b) Use the equation in part (a) to prove that where and m are random variables that take the values zs and ms, respectively, in [10 marks] each state s, and rf is the risk-free interest rate c)Explain how the equation in part (b) adjusts asset prices for risk and the time value 5 mark:s of money (d) Define the certainty equivalent of a risky consumption plan and explain what the 5 mark:s concept has to do with the equation in part (b) Question 2 Suppose there are 3 states of nature, they occur with probabilities {T1, 2, . and the state prices are 101.02.03 (a) Show that the price of an asset paying units of the consumption good in state s, for s 1, 2, 3, equals for some positive numbersm,m2, ma that are the same for all assets. [5 marks] (b) Use the equation in part (a) to prove that where and m are random variables that take the values zs and ms, respectively, in [10 marks] each state s, and rf is the risk-free interest rate c)Explain how the equation in part (b) adjusts asset prices for risk and the time value 5 mark:s of money (d) Define the certainty equivalent of a risky consumption plan and explain what the 5 mark:s concept has to do with the equation in part (b)