Suppose there are two periods: current and future, and three possible states in the future period,...

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Suppose there are two periods: current and future, and three possible states in the future period, Good (G), Fair (F) and Bad (B). Three major financial instruments: T-bill, the Nasdaq index fund, and the Dow Jones index fund, are available on the market. They have the following payoffs in each state: T-bill Nasdaq Dow G 10 30 18 F 10 12 B 10 10 10 The current arbitrage free-price of T-bill is 9.7 and the following information about the arbitrage-free atomic prices is known: PG = 0.22, PB =0.33. Compute the atomic price of the Fair state. Enter your answer using 2 decimal points. Suppose there are two periods: current and future, and three possible states in the future period, Good (G), Fair (F) and Bad (B). Three major financial instruments: T-bill, the Nasdaq index fund, and the Dow Jones index fund, are available on the market. They have the following payoffs in each state: T-bill Nasdaq Dow G 10 30 18 F 10 12 B 10 10 10 The current arbitrage free-price of T-bill is 9.7 and the following information about the arbitrage-free atomic prices is known: PG = 0.22, PB =0.33. Compute the atomic price of the Fair state. Enter your answer using 2 decimal points.

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Solution To compute the atomic price of the Fair state we need to use the formula Atomic ... View the full answer