Suppose you live in the CAPM model world. Goldman Sachs is selling

two derivative securities to your company. Both will pay 100 million

dollars over a 10 year period. Assuming that there is no time value of

money (i.e., the time value of money is zero).

Security A will pay out the cash smoothly over the 10-year period,

with payment equal to 10 million dollars each year.

Security B will pay out cash that is positively correlated with market

risk, thus paying out more when market is booming and less when

market is tanking.

What should be the fair valuation of these two securities at the start

of this 10 year period.

A. Security A's price should be equal to 100 million. Security B's

price should have lower than 100 million.

B. Security A's price should be 100 million. Security B's price should

be more than 100 million.

C. Security A's price should be more than 100 million. Security B's

price should be more than 100 million.

D. Security A's price should be less than 100 million. Security B's

price should have the same as A.