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The arbitrage free prizes for the market index and the risk free bond? 2. Assume you observe the following investment opportunities on the market: Market

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2. Assume you observe the following investment opportunities on the market: Market Price Security Market Index Security B Risk-free bond Weak Economy 700 Strong Economy 1680 1400 1400 The risk free rate is 2%. Investors demand a risk premium of 6% for investing in the market index. The probability for the economy to be weak is 50%

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