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Question B2 (5 marks) Round your answers to 2 decimal places (only if necessary). Use the table for the question(s) below. Consider the following three
Question B2 (5 marks) Round your answers to 2 decimal places (only if necessary). Use the table for the question(s) below. Consider the following three securities that pay the following cash flow in one year (and no cash flow thereafter), depending on whether the economy is strong or weak. Both scenarios are equally likely.: Market Price Security Today Cash Flow in One Year Week Strong Economy Economy 520 0 0 520 520 2080 A B 100 400 ??? C Suppose that security C has a risk premium of 26%. Describe what arbitrage opportunity exists and how you would exploit it
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