 Solution

ID: past-exam-of-the-mathematics-course-of-the-university-of-cambridge/2022/iii/paper-211/2/b/solution

For the bond maturing one period later,

E (Y_{t} ∣ F_{t - 1}) = Y_{t - 1} P_{t - 1}^{t} = \frac{Y _{t - 1}}{1 + r _{t}} .

r_{t} \geq 0

, this is at most

Y_{t - 1}

, which is exactly the supermartingale property.

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