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In frictionless markets with exactly two states of nature, 1 , and 2 , it is found that the state prices are s1=1/2 and s2=1/3.

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In frictionless markets with exactly two states of nature, 1 , and 2 , it is found that the state prices are s1=1/2 and s2=1/3. It follows that: A. An asset with payoffs 8&12 in states 1&2, respectively, has price equal to 10. B. The Risk Neutral Valuation Relationship (RNVR) is satisfied with probabilities 1=3/5,2=2/5 and implied discount factor =5/6. C. In the absence of arbitrage opportunities there can exist no risk-free security. D. All assets' rates of return must be determined according to a two factor model, with factor risk premiums 1/2 and 1/3 respectively. E. None of the above

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