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(a) Is there an arbitrage? [2p] (b) If yes, find an arbitrage portfolio. [3p] Suppose p3=1.2. (c) Does an arbitrage portfolio exist? (d) Can you

(a) Is there an arbitrage? [2p]

(b) If yes, find an arbitrage portfolio. [3p]

Suppose p3=1.2.

(d) Can you create a portfolio with payoff of (60, 70, 120) at t=1 and what is the t=0 price

of such a portfolio?

(e) Determine the (implicit) risk free rate in this economy.

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