Question: Please explain/work-out the correct answer that is in bold. Imagine there are three possible states of the world that could prevail in one year. The

Please explain/work-out the correct answer that is in bold.

Imagine there are three possible states of the world that could prevail in one year. The prices and payoffs of three assets are summarized by the following table. All three assets have the same expected return. Q14 (4 pts) If no arbitrage opportunities exist, what is the price of an asset that has a payoff of $2 in state 1,$0 in state 2 , and $0 in state 3 ? A. $0.85 Hint: all three assets have the same expected return first look at the assets and determine if you can solve for this B. $0.90 expected return, then evaluate the other assets to find the missing probabilities C. $0.95 D. $1.00 E. None of the above or cannot be determined based on the information given

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