At Time 0, asset ABC is selling for $85 and XYZ is selling for $41. These assets' prices at Time 1 are given under two states of the economy Assume "short selling" is allowed. That is, you can borrow units of ABC and/or XYZ from your broker. Using the concept of "Arbitrage and the Law of One Price" discussed in class, show how you can make a riskless profit.

Figure 1.1

Time 0Time 1

(1) State: GOOD

ABC=$100

XYZ=$ 50

ABC=$85

XYZ=$41

(2) State: BAD

ABC=$ 80

XYZ=$ 40