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The stochastic discount factor (SDF) in a consumption asset pricing model can be written as: u'(C++1) Mt+1 = B u'(ct) Where u (c) is a
The stochastic discount factor (SDF) in a consumption asset pricing model can be written as: u'(C++1) Mt+1 = B u'(ct) Where u (c) is a utility function and u'(c) is its first derivative with respect to c. Suppose the utility function is of the form: u(c) 1-1 ct 1-7 If consumption today is 0.5, consumption tomorrow is 0.4, is equal to 0.98 and y is equal to 2, the value of the SDF is: A. 1.531 B. 0.627 C. 1.562 D. 1.225
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