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Question 2 (15 marks) Consider a one-period economy with two end-of-period states. Assume that there are two option contracts. Option one pays 3 in state

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Question 2 (15 marks) Consider a one-period economy with two end-of-period states. Assume that there are two option contracts. Option one pays 3 in state 1 and 0 in state 2, and has current price of 1. Option two pays 3 in state 1 and -2 in state 2, and has current price of 0.5. What are the one period risk-free return and the risk-neutral probabilities of the two states

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