Question: There are two dates: 0 and T. At date T, there are two equally likely states of the world: u and d. Consider two securities

There are two dates: 0 and T. At date T, there are two equally likely states of the world: u and d. Consider two securities X and Y. Security has a price of X0= 1 and payoffs XT(u) = 3 in state u and XT(d) = 0 in stated. Security has a price of Y0= 2 and payoffs of YT(u) = 0 and YT(d) = 3.

Is there an arbitrage opportunity? If so, what should you buy? What should you sell? If not, then why?

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