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Problem 1 . 3 In table 1 . 3 below, information about the market index, asset E and the risk - free as - set
Problem
In table below, information about the market index, asset and the riskfree as
set on a normal market are stated. The nominal riskfree rate next year is The
probability of a boom is Inflation next year is expected to be
Table : Information on prices and cash flows
Problem a
Calculate the price at of the riskfree asset.
Problem b
Give a brief account of how the Law of One Price can generally be used to determine
the price of assets. No calculations are needed.
Problem c
Determine a replicating portfolio for asset
Opgave d
Calculate the expected nominal return for asset in the coming year. The result
must be presented in percentage
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