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State of Nature Next Year Probability of Probability of State 1 State 2 60% 40% Payoff in Payoff in Security Price Today State 1 State

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State of Nature Next Year Probability of Probability of State 1 State 2 60% 40% Payoff in Payoff in Security Price Today State 1 State 2 A $2.50 $2.00 $4.00 B $3.00 $6.00 $3.00 $3.50 $10.00 $2.00 Using the prices and payoffs above, is there an arbitrage opportunity? O Cannot be determined Yes

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