Example of price sequence

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Reference no: EM132020462

Consider an infinitely lived asset that pays risk-free dividend dt = 1 at every date t. Suppose that one-period risk-free rate of return is r = 0.1 at every date t. Show that asset price pt = 10 for every t satisfies the NPV relation with no bubble. Give an example of price sequence {pt} such that there is a strictly positive bubble.

Reference no: EM132020462

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