Imagine a one-period economy with two possible end-of-period states that are equally likely. Two assets are traded. Asset 1 has an initial price of 1 and pays off 1 in state 1 and 2 in state 2 . Asset 2 has an initial price of 3 and gives a payoff of 2 in state 1 and a payoff k in state 2 , where k is some constant. 1. Argue that if k=4, the Law of One Price does not hold. Is the Law of One Price violated for other values of k ? 3. For what values of k is the market free of arbitrage? 4. Assume k=8. Is it possible to obtain a risk-free dividend? If so, what is the risk-free rate? Imagine a one-period economy with two possible end-of-period states that are equally likely. Two assets are traded. Asset 1 has an initial price of 0.9 and pays off 0 in state 1 and 1 in state 2 . Asset 2 has an initial price of 1.6 and gives a payoff of 1 in state 1 and a payoff 2 in state 2 . 1. Does the law of one price hold? 2. Does the market free of arbitrage