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Consider non-dividend-paying assets A and B. The asset prices one year from now will depend on the state of economy as follows: Asset price in
Consider non-dividend-paying assets A and B. The asset prices one year from now will depend on the state of economy as follows:
Asset price in one year Boom Recession asset A 50 20 asset B 30 30
Currently asset A sells for $15 and asset B sells for $27. Which of the following strategies results in an arbitrage?
(a) buy 1 unit of asset A and sell 0.6 unit of asset B (b) sell 1 unit of asset A and buy 0.5 unit of asset B (c) sell 2 unit of asset A and buy 1.2 unit of asset B (d) None of the above leads to an arbitrage
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