Question
Refer to the following table: Assets Price State 1 Payoff State 2 Payoff A 3 2 4 B 7.5 6 9 C 9 8 10
Refer to the following table:
Assets | Price | State 1 Payoff | State 2 Payoff |
A | 3 | 2 | 4 |
B | 7.5 | 6 | 9 |
C | 9 | 8 | 10 |
D | 15 | 12 | 21 |
PART A. Let a be the number of shares of Asset A, and let b be the number of shares of Asset B. Solve for the number of shares a and number of shares b which produces the same payoffs as Asset C.
a=
b=
PART B. Let a be the number of share of Asset A, and let b be the number of shares of Asset B. Solve for the number of shares a and number of shares b which produces the same payoffs as Asset D.
a=
b=
PART C. Which of the following trades produces a riskless profit? Select all that apply.
a. Buying 1 share of A and 3 shares of B and short selling 1 share of C and 1 share of D
b. Buying 4 shares of B and short selling 4 shares of A and 2 shares of C
c. Buying 8 shares of A and 1 share of C and short selling 2 shares of D
d. Buying 1 share of C and short selling 1 share of B and 1 share of A
e. None of the above
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