Question: Show that the following tree is not arbitrage- free. Time 0 Time 1 Zero-Coupon Bond Prices B(1,3) 0.9167 B(1,2 0.9620 (Up state) (0)-0.3 B (0,3)

Show that the following tree is not arbitrage- free.

Time 0 Time 1 Zero-Coupon Bond Prices B(1,3) 0.9167 B(1,2 0.9620 (Up" state) (0)-0.3 B (0,3) 0.83 B(0,2)-0.93R(O)0.0309 B(0,1) 0.97 B(1,3)0.8977 B(1,2)d-0.9555Down" state) Money Market Account (mma) A(0) 1 A(1)1R(O) 1.0309

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