6 14. Answer both parts (a) and (b) of this question. (a) In an economy with only two possible states of the world and three assets, the payoffs for the assets in each state and the market prices of the assets are given by: Asset A Asset B Asset State 1 0 4. 18 State 2 12 8 Price 8 6 () [15 marks] Explain how the price, pc, can be determined from the given information in the absence of arbitrage opportunities. (ii) [10 marks) Define and interpret the term Risk Neutral Valuation Relationship in the absence of arbitrage opportunities. Verify that it is satisfied using the information above. (iii) [5 marks] Define state prices in the context of the numerical example above. Provide a brief interpretation and calculate the state prices using the given information PC (b) [10 marks] Explain the term 'limited arbitrage and comment on its implications for asset price determination