Correct answer is C, D, H. Please explain how to solve.

2. Assume markets are "perfect as described in Chapter 17. Firm U and Firm L have the exact same assets (managed in exactly. the same way). Firm U has no debt. The market value of Firm U's equity is $8000. Firm L has risk-free perpetual debt with a market value of $1750 and equity with a market value of $5250. Therefore, the market values of Firm U and Firm L are $8000 and $7000 respectively. Since these two firms do not have the same market value, you should be able to earn a true arbitrage. What are the three positions you need to take at time zero to earn a true arbitrage profit? (Use the procedures we discussed in class. Also, as in class, assume alpha = 10%. You must get all three answers correct to get credit.) Pick one A. Sell short $300 of Firm L equity B. Sell short $400 of Firm L equity C. Sell short $800 of Firm U equity Pick one G. Invest $525 into the equity of Firm L H. Invest $600 into the equity of Firm L 1. Invest $800 into the equity of Firm U J. Invest $700 into the equity of Firm U Pick one D. Invest $200 into the debt of Firm L E. Invest $175 into the debt of Firm L F. Borrow $175 2. Assume markets are "perfect as described in Chapter 17. Firm U and Firm L have the exact same assets (managed in exactly. the same way). Firm U has no debt. The market value of Firm U's equity is $8000. Firm L has risk-free perpetual debt with a market value of $1750 and equity with a market value of $5250. Therefore, the market values of Firm U and Firm L are $8000 and $7000 respectively. Since these two firms do not have the same market value, you should be able to earn a true arbitrage. What are the three positions you need to take at time zero to earn a true arbitrage profit? (Use the procedures we discussed in class. Also, as in class, assume alpha = 10%. You must get all three answers correct to get credit.) Pick one A. Sell short $300 of Firm L equity B. Sell short $400 of Firm L equity C. Sell short $800 of Firm U equity Pick one G. Invest $525 into the equity of Firm L H. Invest $600 into the equity of Firm L 1. Invest $800 into the equity of Firm U J. Invest $700 into the equity of Firm U Pick one D. Invest $200 into the debt of Firm L E. Invest $175 into the debt of Firm L F. Borrow $175