Explain why the following is an example of an arbitrage. There are two securities A and B. At time t = O the securities cost PA and PB respectively. The term of the securities is 1 year. At t = : 1 either the market goes up and the securities pay P^^ (u), P (u) or the market goes down with payments PA (d), PB (d). Investors buy a security by paying the time 0 price and receiving time 1 income. Investors sell a security by receiving the time 0 price and paying time 1 outgo. Assume Security Po P(u) P(d) A 6 7 5 B 11 14 10