3. There are two assets being traded in the beginning of the year whose price is closely related to the USA economics performance. If the economic situation is good then asset A will have price 12 at the beginning of the next year and asset B will have price 14. If the economic situation is bad, then A will have price 8 and B price 6. The initial price of asset A is 8 and that of B is 9. (a) [20 points] If there if no arbitrage possible, how much is the risk-free interest rate? (b) [10 points bonus If the risk-free interest rate is 12%, give an example of how could you make profit on the arbitrage opportunity

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