For this question you have two different markets, each with its own set of market securities...

  

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For this question you have two different markets, each with its own set of market securities and prices. Security x1 x2 x3 x4 x5 Security y1 y2 y3 y4 y5 M = 1 -2 -1 21171 -2 -2 1 M = 1 -1 دن به دن -3 -2 -3 1 Market 1 - Security Payoffs M = 2 M = 3 2 0 1 1 Market 2 - Security Payoffs M = 2 M = 3 0 0 2123 -1 1 1 1 0 2 3 0 M = 4 45252 -2 M = 4 2527 -1 Market Price 1.62 0.91 0.67 1.10 0.52 Market Price 0.83 0.33 0.68 1.26 0.34 Part A: Determine i) whether each market is complete and ii) the number of redundant securities. Be sure to explain (very briefly) why each market is, or is not, complete and why there are, or are not any, redundant securities. Part B: Is asset ₂ in Market 1 mispriced relative to the remaining market securities? Explain. Part C: Is asset y2 in Market 2 mispriced relative to the remaining market securities? Explain. Part D: Which market offers a higher risk-free rate of return? To answer this question you can consider writing an asset that pays $1 in each state of nature, calculate its price, and then use the price to determine the one-period risk-free rate of return. Note: Please write a live script to show your solutions to this question. For this question you have two different markets, each with its own set of market securities and prices. Security x1 x2 x3 x4 x5 Security y1 y2 y3 y4 y5 M = 1 -2 -1 21171 -2 -2 1 M = 1 -1 دن به دن -3 -2 -3 1 Market 1 - Security Payoffs M = 2 M = 3 2 0 1 1 Market 2 - Security Payoffs M = 2 M = 3 0 0 2123 -1 1 1 1 0 2 3 0 M = 4 45252 -2 M = 4 2527 -1 Market Price 1.62 0.91 0.67 1.10 0.52 Market Price 0.83 0.33 0.68 1.26 0.34 Part A: Determine i) whether each market is complete and ii) the number of redundant securities. Be sure to explain (very briefly) why each market is, or is not, complete and why there are, or are not any, redundant securities. Part B: Is asset ₂ in Market 1 mispriced relative to the remaining market securities? Explain. Part C: Is asset y2 in Market 2 mispriced relative to the remaining market securities? Explain. Part D: Which market offers a higher risk-free rate of return? To answer this question you can consider writing an asset that pays $1 in each state of nature, calculate its price, and then use the price to determine the one-period risk-free rate of return. Note: Please write a live script to show your solutions to this question.

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To analyze the given question well go through each part one by one Part A Determining Market Completeness and Redundant Securities To determine whether each market is complete we need to check if the ... View the full answer