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Explain the elements that define pure security prices

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Pure securities and asset pricing under uncertainty: a. What is a "pure security" and why are they important? We have derived the price of the pure security as (this is also in your book):

=( 1 ) (1- ( )- ). 1+ 1+ ( )

  • Explain the elements that define pure security prices in terms of what economic factors will influence them.
  • What are the assumptions that need to hold in order for this price to be unique?
  • What implications does this pricing equation for pure securities imply about other, more realistic, securities that might trade in the market?

Reference no: EM132499758

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