Question: Consider the following model with two assets and three states, and suppose that r = 0%. n 1 2 Sn (0) 3 9 Sn(1,w)

Consider the following model with two assets and three states, and suppose that r = 0%. n 1 2 Sn (0) 3 9 Sn(1,w) Sn(1, W2) Sn(1, W3) 4 2 11 5 3 8 Show that there exists a portfolio H which is a sure-thing arbitrage and where H 1 Vw. Write H in vector form. Assuming the asset prices are in USD construct a portfolio with a guaranteed profit of $100.

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