Question: 1. There are two possible future states. Stat-e 1.. in which the pandemic forces us to go into another lockdown this winter: happens with probability

1. There are two possible future states. Stat-e 1.. in which the pandemic forces us to go into another lockdown this winter: happens with probability [1.3. State 2.. in which we continue to progress toward normalcy this winter, happens with probability (1.1". The following table contains the current prices of Zoom and United as well as their possible prices in the two future states. Assume no arbitrage. [3 points total, [1.5 points each part] Possible prices Stock Price State 1 State 2 Boom $231 $337 $23? United $44 $35 $43 Amazon $31795 $3,523 {a} at are the realized returns on Zoom in states 1 and 2? {b} Mat is the expected return on Zoom today?II {c} Mat is the price of a secm'ity that pays $1 in stat-e 1 and $1] in state 2. {d} {e} Mat are the realized Tvalues of the stochastic discount. factor in states 1 and 2? l [f Use you answer from part {e} to compute the price of Amazon stock. 'What is the price of a security that pays $1} in stat-e 1 and $1 in state 2. n 'rl II" III 11.1 J .1 I :I' 'I I ll" 'I" Pnr'rl

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