Let 100 -100 A = 300 -300 200 -200 be an asset payoff matrix. You are 'greedy': 'more is better' in at least one state. (a) Suppose that a broker offers you to sell asset 2 at a price of AED 300. What should the price of asset 1 be for the Law of One Price to hold, if at all possible? Explain. (b) Can the prices you found under (a) be part of a financial equilibrium? Explain. (c) Give no arbitrage prices q1, q2 consistent with an implicit riskfree discount rate of p= 0.

Let 100 -100 A = 300 -300 200 -200 be an asset payoff matrix. You are 'greedy': 'more is better' in at least one state. (a) Suppose that a broker offers you to sell asset 2 at a price of AED 300. What should the price of asset 1 be for the Law of One Price to hold, if at all possible? Explain. (b) Can the prices you found under (a) be part of a financial equilibrium? Explain. (c) Give no arbitrage prices q1, q2 consistent with an implicit riskfree discount rate of p= 0.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.7P

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