Question Consider an asset pricing model, in which a representative agent gets an endowment de in period t, where d, has a stochastic component. In addition, the agent is subject to preference shocks & , which also has a stochastic component (possibly correlated with di) and affect the marginal utility of consumption. That is, the agent seeks to maximize: E. (L-o';u(c)], where the initial values (do, 5o) are given. We impose standard assumptions for u(ct). Lastly, the agent can trade in a full set of contingent securities. Answer followings questions. (a) Derive the Euler equation. (b) Find the risk-free interest rate. (c) Rearrange the Euler equations for t,t +1,... I to find the expressions which determine the equilib- rium price p, of a claim to the endowment process. You can assume that bubble never occurs (Hint: In the equilibrium, following conditions are satisfied: 0+1 = 1,07 = d; for each period t). Question Consider an asset pricing model, in which a representative agent gets an endowment de in period t, where d, has a stochastic component. In addition, the agent is subject to preference shocks & , which also has a stochastic component (possibly correlated with di) and affect the marginal utility of consumption. That is, the agent seeks to maximize: E. (L-o';u(c)], where the initial values (do, 5o) are given. We impose standard assumptions for u(ct). Lastly, the agent can trade in a full set of contingent securities. Answer followings questions. (a) Derive the Euler equation. (b) Find the risk-free interest rate. (c) Rearrange the Euler equations for t,t +1,... I to find the expressions which determine the equilib- rium price p, of a claim to the endowment process. You can assume that bubble never occurs (Hint: In the equilibrium, following conditions are satisfied: 0+1 = 1,07 = d; for each period t)