152 R.Mehra and E.C.Prescott,The equity premium convention,the price of the equity share from(6)satisfies p(c,i)=B∑中，(c)[p(c,)+cc (7) Using the result that pe(c,i)is homogeneous of degree one in c,we represent this function as pe(c,i)=wc, (8) where w is a constant.Making this substitution in(7)and dividing by c yields w=Bw+1)for i=1.....n. (9) =1 This is a system of n linear equations in n unknowns.The assumption that guaranteed existence of equilibrium guarantees the existence of a unique positive solution to this system. The period return if the current state is(c,i)and next period state(A c,j)is 方-pas功+Ac-pc,) pe(c,i) 入（%+1) (10) 州 1, using (8). The equity's expected period return if the current state is i is R=∑ (11) i=1 Capital letters are used to denote expected return.With the subscript i,it is the expected return conditional upon the current state being (c,i).Without this subscript it is the expected return with respect to the stationary distribution. The superscript indicates the type of security. The other security considered is the one-period real bill or riskless asset, which pays one unit of the consumption good next period with certainty