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The following is a scenario for three stocks constructed by the security analysts of a company: Scenario Rate of Return (%) Stock Price ($) Recession
The following is a scenario for three stocks constructed by the security analysts of a company: Scenario Rate of Return (%) Stock Price ($) Recession Average Boom 10 -15 20 15 25 10 30 -10 12 50 12 15 a. Construct an arbitrage portfolio using these stocks. b. How might these prices change when equilibrium is restored? Give an example where a change in Stock C's price is sufficient to restore equilibrium, assuming that the dollar payoffs to Stock C remain the same. The following is a scenario for three stocks constructed by the security analysts of a company: Scenario Rate of Return (%) Stock Price ($) Recession Average Boom 10 -15 20 15 25 10 30 -10 12 50 12 15 a. Construct an arbitrage portfolio using these stocks. b. How might these prices change when equilibrium is restored? Give an example where a change in Stock C's price is sufficient to restore equilibrium, assuming that the dollar payoffs to Stock C remain the same
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