Podcast
Questions and Answers
How does the real risk-free rate change as individuals become more impatient?
How does the real risk-free rate change as individuals become more impatient?
- Becomes negative
- Rises (correct)
- Remains the same
- Falls
What is the impact on the real risk-free rate when the variance of consumption growth increases?
What is the impact on the real risk-free rate when the variance of consumption growth increases?
- Falls (correct)
- Rises
- Remains the same
- Becomes negative
How does an increase in γ affect the real risk-free rate according to the text?
How does an increase in γ affect the real risk-free rate according to the text?
- Has no effect on the real risk-free rate
- Increases it due to intertemporal substitution (correct)
- Decreases it due to risk aversion
- Causes the real risk-free rate to fluctuate
What does the parameter γ represent in a power utility function?
What does the parameter γ represent in a power utility function?
How does relative risk aversion change as γ decreases?
How does relative risk aversion change as γ decreases?
What is the Elasticity of Intertemporal Substitution (EIS) when γ equals 1?
What is the Elasticity of Intertemporal Substitution (EIS) when γ equals 1?
Which financial asset delivers the optimal amount of consumption smoothing?
Which financial asset delivers the optimal amount of consumption smoothing?
What does the second term of (5) represent?
What does the second term of (5) represent?
When is the risk-free asset return represented as E(1+Rt+1F)=1+Rt+1F=1/E(St+1)?
When is the risk-free asset return represented as E(1+Rt+1F)=1+Rt+1F=1/E(St+1)?
What does equation (8) help us understand about the risk-free rate?
What does equation (8) help us understand about the risk-free rate?
What happens to the relationship between SDF and R when Cov(St+1Rt+1) is negative?
What happens to the relationship between SDF and R when Cov(St+1Rt+1) is negative?
What does the risk premium represent in equation (7)?
What does the risk premium represent in equation (7)?
What is the meaning of the covariance term in the context of asset pricing?
What is the meaning of the covariance term in the context of asset pricing?
Based on the information provided, what does a positive Cov(St+1Rt+1) indicate?
Based on the information provided, what does a positive Cov(St+1Rt+1) indicate?
How can the formula E(1+Rt+1) = 1/E(St+1)-Cov(St+1Rt+1)/E(St+1) be rearranged?
How can the formula E(1+Rt+1) = 1/E(St+1)-Cov(St+1Rt+1)/E(St+1) be rearranged?
In the context of asset pricing, what does a high SDF value correspond to?
In the context of asset pricing, what does a high SDF value correspond to?
What do Figures 1 and 2 illustrate in terms of the relationship between Consumption and SDF?
What do Figures 1 and 2 illustrate in terms of the relationship between Consumption and SDF?
If Cov(St+1Rt+1) is negative, what kind of relationship does it suggest between SDF and R?
If Cov(St+1Rt+1) is negative, what kind of relationship does it suggest between SDF and R?
What is the key aspect of an asset's risk identified using the SDF approach?
What is the key aspect of an asset's risk identified using the SDF approach?
For a log normally distributed random variable, what does E(en) = eE(n)+0.5Var(n) represent?
For a log normally distributed random variable, what does E(en) = eE(n)+0.5Var(n) represent?
What is the formula for U'(C) when U(C)=C^(1-γ)/(1-γ)?
What is the formula for U'(C) when U(C)=C^(1-γ)/(1-γ)?
What does ln(St+1)=ln(θ)-γ(ln(Ct+1)-ln(Ct)) represent?
What does ln(St+1)=ln(θ)-γ(ln(Ct+1)-ln(Ct)) represent?
What does ln(θ)𝑒∆𝑐𝑡+1 = 𝛾2 - 𝛾𝐸∆𝑐𝑡+1 + 2𝑉𝑎𝑟(∆𝑐𝑡+1) calculate?
What does ln(θ)𝑒∆𝑐𝑡+1 = 𝛾2 - 𝛾𝐸∆𝑐𝑡+1 + 2𝑉𝑎𝑟(∆𝑐𝑡+1) calculate?
What is the formula for 𝐹𝑅𝑡+1 in terms of ln(θ), 𝛾, 𝐸∆𝑐𝑡+1, and 𝑉𝑎𝑟(∆𝑐𝑡+1)?
What is the formula for 𝐹𝑅𝑡+1 in terms of ln(θ), 𝛾, 𝐸∆𝑐𝑡+1, and 𝑉𝑎𝑟(∆𝑐𝑡+1)?
Individuals with high $\gamma$ have a higher preference for low volatility of consumption because:
Individuals with high $\gamma$ have a higher preference for low volatility of consumption because:
Based on the information provided, how does an increase in $E(R_{t+1})$ affect an individual's savings (Ct)?
Based on the information provided, how does an increase in $E(R_{t+1})$ affect an individual's savings (Ct)?
Which function represents a higher preference for low consumption volatility?
Which function represents a higher preference for low consumption volatility?
In the context of the text, why do individuals with high $U''(C)/U'(C)$ respond more to changes in consumption growth volatility?
In the context of the text, why do individuals with high $U''(C)/U'(C)$ respond more to changes in consumption growth volatility?
How does an individual's saving decision change as $\gamma$ increases?
How does an individual's saving decision change as $\gamma$ increases?
Based on the formula $U'(C) = C - \gamma$, what happens to $U'(C)$ if there is a given change in $C$ and $\gamma$ increases?
Based on the formula $U'(C) = C - \gamma$, what happens to $U'(C)$ if there is a given change in $C$ and $\gamma$ increases?
