Question: No arbitrage means that two assets must have the same price if their cash flows are identical. Explain whether no arbitrage holds for the following
No arbitrage means that two assets must have the same price if their cash flows are identical. Explain whether no arbitrage holds for the following assets or not.
Asset A pays investor $60 in 6 months and $1,060 in 1 year. The price is $1000.
Asset C pays investor $50 in 6 months and $1,050 in 1 year. The price is $960.
Asset B pays investor $40 in 6 months and $1,040 in 1 year. The price is $900.
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