Q$1.$

$\backslash$table$[[$Security$,$Market Price Today,Cash Flow in One Year$],[,$Weak Economy,Strong Economy$],[A,231,0,600],[B,346,600,0],[C,?,600,1800]]$

a$)$ What are the payofis of a pottolio of one share of security A and one share of security B$?$

b$)$ What is the market price of this portiolio? What expected retum will you cam fiom holding this portfolio?

c$)$ What is the no$-$abitrage price of security C$?$

d$)$ What is the expected retum of security Cif both states are equally likely? What is its risk premium?

e$)$ What are the returns when the maket is strong and when the market is weak?

f$)$ Suppose your subordinate told you that the risk premium for C should be $10\%.$ What would be the price of $C$ given that risk premium? Is your subordinate correct?