State

Probability of outcome

M (pricing kernel)

Happy times

70%

$0.90

Sad times

30%

$1.02

Use the information in Table 1 to answer this question. What is the yield on the risk-free security? Hint: The risk-free security pays the same dollar amount in every state.

Cannot be computed with the information provided

0%

4.16%

6.83%

93.6%

Use the information in Table 1 to answer this question. What price would you pay for stock NBN that gives $10 in the Happy times and $5 in the Sad times?

Cannot be computed with the information provided

$1.53

$6.21

$7.05

$7.83

3. Use the information in Table 1 to answer this question. What price would you pay for stock MVM that gives $5 in the Happy times and $10 in the Sad times?

Cannot be computed with the information provided

$1.53

$6.21

$7.05

$7.8

Question

State	Probability of outcome	M (pricing kernel)
Happy times	70%	$0.90
Sad times	30%	$1.02

Use the information in Table 1 to answer this question. What is the yield on the risk-free security? Hint: The risk-free security pays the same dollar amount in every state.

Cannot be computed with the information provided
0%
4.16%
6.83%
93.6%

Use the information in Table 1 to answer this question. What price would you pay for stock NBN that gives $10 in the Happy times and $5 in the Sad times?

Cannot be computed with the information provided
$1.53
$6.21
$7.05
$7.83

3. Use the information in Table 1 to answer this question. What price would you pay for stock MVM that gives $5 in the Happy times and $10 in the Sad times?

Cannot be computed with the information provided
$1.53
$6.21
$7.05
$7.8

Accepted Answer

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Question

State Probability of outcome M (pricing kernel) Happy times 70% $0.90 Sad times 30% $1.02 Use the information in Table 1 to answer this question.

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