Question
Next year, in the good state of the world, one parcel of land is worth $140,000 and in the bad state of the world, one
Next year, in the good state of the world, one parcel of land is worth $140,000 and in the bad state of the world, one parcel of land is worth $20,000. Next year, in the good state of the world, one housing unit is $250,000 and in the bad state of the world one housing unit is worth $210,000. Next year one housing unit will be $15,000 regardless of the state of the world. One housing unit currently costs $190,000 and the current risk-free rate 4%. How many housing units do you need to buy now to set up a replicating portfolio for land payouts next year?
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