Alice is considering buying a security from Bob. There are two states of the world, L and H, which occur with equal probability. In the H state the security is worth 20 pounds to Alice and 15 pounds to Bob. In the L state the security is worth 5 pounds to both. Assuming that only Bob knows the state of the world.

1. Alice and Bob will be able to trade if S>10
2. Alice and Bob will never trade due to adverse selection
3. If S<10, trade can only occur in state H
4. Alice and Bob will never trade if S=15 The assets of company X have a beta equal to 1. Assume that the companys debt has a beta equal to 0.5 and that Xs equity has a beta equal to 2. Consider an investor who holds 10% of the company;s debt and 10% of the companys equity. The beta of the investors portfolio is equal to A.0.25 B.1 C1.25 D.0.1