Assume 4% risk-free rate, no-arbitrage securities market and equally likely states of the economy in one year and use the information in the table below to answer the questions asked. Weak Economy 1600 Security Market Index Security B Risk-free Bond Market Price Today 2000 ? 2692.30 Strong Economy 2800 0 2800 1200 2800 Questions: 1. What should be the price of security B? 2. What would be the expected return and risk premium for security B? 3. How can the magnitude and the sign of the risk premium for security B be explained? 4. Securities A in our example and security B in the problem 1 seem very similar in that both are equally likely to pay $1200 or $0. How can then one justify the price of security A and security B to be significantly different? Assume 4% risk-free rate, no-arbitrage securities market and equally likely states of the economy in one year and use the information in the table below to answer the questions asked. Weak Economy 1600 Security Market Index Security B Risk-free Bond Market Price Today 2000 ? 2692.30 Strong Economy 2800 0 2800 1200 2800 Questions: 1. What should be the price of security B? 2. What would be the expected return and risk premium for security B? 3. How can the magnitude and the sign of the risk premium for security B be explained? 4. Securities A in our example and security B in the problem 1 seem very similar in that both are equally likely to pay $1200 or $0. How can then one justify the price of security A and security B to be significantly different