Stock A pays $11 in state 1 and $7 in state 2. Stock B pays $7 in state 1 and $11 in state 2. Let C_s give price of a primary claim on state s = 1,2. Assume A has market price $5 and B has market price $6. No arbitrage implies: No arbitrage on A: $11C_1 + $7C_2 = $5 (= market price of A) No arbitrage on B: $7C_1 + $11C_2 = $6(= market price of B) a) What are the values of unit claims on each state at time 1? Which claim is more expensive? Explain the intuition behind the ordering of the prices of the claims using the payoffs of the two assets in each state and their market prices. Beyond the market prices of A and B and "no arbitrage", provide some possible explanations for why the one claim is priced above the other. b) Find the risk-free rate of return that must obtain in the market