There are two securities, Y and Y2, and two states of the world, A and B,...
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There are two securities, Y₁ and Y2, and two states of the world, A and B, that can be realized tomorrow. The payoff matrix is [3 where entry a represents the payoff of security j in state i. The prices of Y₁ and Y₂ today are 1.5 and r respectively. (a) If a = 2.3, what is the risk-free rate of interest per day in this economy?/10 pts.] . (b) What is the price of the state security for state A? Assume that price of Y is r and write your answer as an algebraic expression./10 pts.] (c) What is the value of r, such that there would exist arbitrage possibilities if the price of Y₂ was below that value? (5 pts.] There are two securities, Y₁ and Y2, and two states of the world, A and B, that can be realized tomorrow. The payoff matrix is [3 where entry a represents the payoff of security j in state i. The prices of Y₁ and Y₂ today are 1.5 and r respectively. (a) If a = 2.3, what is the risk-free rate of interest per day in this economy?/10 pts.] . (b) What is the price of the state security for state A? Assume that price of Y is r and write your answer as an algebraic expression./10 pts.] (c) What is the value of r, such that there would exist arbitrage possibilities if the price of Y₂ was below that value? (5 pts.]
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Related Book For
College Mathematics for Business Economics Life Sciences and Social Sciences
ISBN: 978-0321614001
12th edition
Authors: Raymond A. Barnett, Michael R. Ziegler, Karl E. Byleen
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