1. Formulate the consumption-based model in terms of objective function and budget constraints. Derive the equilibrium asset pricing equation.
  2. Show the equivalence between pricing payoffs and returns.
  3. Derive an expression relating the risk-free rate to the stochastic discount factor. How does the stochastic discount factor influence the risk-free rate?
  4. Derive the expected return-beta representation from the equilibrium consumption model.
  5. Derive the mean-variance efficiency frontier from the equilibrium consumption model.
  6. Show how the stochastic discount factor influences the Sharpe ratio.