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5. (10 pts) In a CBAPM world with 2 securities and 2 states of the world as in the handout. Security 1, with a price

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5. (10 pts) In a CBAPM world with 2 securities and 2 states of the world as in the handout. Security 1, with a price P1,0, has 1 unit of the consumption good in state 1 and none in state 2. Security 2, with a price P2,0, pays 0 in state 1 and 1 unit in state 2. a. Construct a portfolio consisting of each security that makes the portfolio risk- free. What is rf? b. How much would a portfolio that pays 3 units of consumption in state 1 and 2 units of consumption in state 2 cost. + 5. (10 pts) In a CBAPM world with 2 securities and 2 states of the world as in the handout. Security 1, with a price P1,0, has 1 unit of the consumption good in state 1 and none in state 2. Security 2, with a price P2,0, pays 0 in state 1 and 1 unit in state 2. a. Construct a portfolio consisting of each security that makes the portfolio risk- free. What is rf? b. How much would a portfolio that pays 3 units of consumption in state 1 and 2 units of consumption in state 2 cost. +

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