Assume you have estimated the following probabilities of and state prices (discount factors) for these potential future Good (G), Normal (N), and Bad (B) economic states (1 year out). Prob[G]=30% ; TIN = Prob[N]=50% ; Prob[B]=20%. Do = Priceto[$1 [G] = $0.7 ; DN = Priceto[$1 [N] = $0.9 ; DB = Priceto[$1 |B] = $1.4 TAG = TTB = = = (1) What is the risk free rate? (2) You know about asset X that would pay either $50 in the Good state (G), or $34 in the Normal state (N), or $10 if the Bad economic state happens next period. (a) What is the current (time to) price of asset X : PO ? (b) What is the expected payoff of this asset: E[CFt] ? (C) Assuming you buy X now at its fair price, what is the expected rate of return: E[R] ? Assume you have estimated the following probabilities of and state prices (discount factors) for these potential future Good (G), Normal (N), and Bad (B) economic states (1 year out). Prob[G]=30% ; TIN = Prob[N]=50% ; Prob[B]=20%. Do = Priceto[$1 [G] = $0.7 ; DN = Priceto[$1 [N] = $0.9 ; DB = Priceto[$1 |B] = $1.4 TAG = TTB = = = (1) What is the risk free rate? (2) You know about asset X that would pay either $50 in the Good state (G), or $34 in the Normal state (N), or $10 if the Bad economic state happens next period. (a) What is the current (time to) price of asset X : PO ? (b) What is the expected payoff of this asset: E[CFt] ? (C) Assuming you buy X now at its fair price, what is the expected rate of return: E[R]