Question c

Question 6. State Preferences Theory (independently and detailed solutions) Two securities have the following payoffs in the two equally likely states of nature at the end of one year: Security j k Payoff s=1 s=2 $10 $20 $30 $10 Security j costs $8 today, whereas k costs $9, and your total wealth is currently $720. a.) If you wanted to buy a completely risk-free portfolio (i.e., one that has the same payoff in both states of nature), how many shares j and k would you buy? (You may buy fractions of shares). b.) What is the one period risk-free rate of interest? c.) If there were two securities and three states of nature, you would not be able to find a completely risk-free portfolio. Why not? Question 6. State Preferences Theory (independently and detailed solutions) Two securities have the following payoffs in the two equally likely states of nature at the end of one year: Security j k Payoff s=1 s=2 $10 $20 $30 $10 Security j costs $8 today, whereas k costs $9, and your total wealth is currently $720. a.) If you wanted to buy a completely risk-free portfolio (i.e., one that has the same payoff in both states of nature), how many shares j and k would you buy? (You may buy fractions of shares). b.) What is the one period risk-free rate of interest? c.) If there were two securities and three states of nature, you would not be able to find a completely risk-free portfolio. Why not