The state prices of an economy with two states is given by p1 = 0.48 and p2 = 0.46. Consider an underlying whose state dependent cash flows are 130 in state 1 and 90 in state 2.

a) Calculate the risk-free return, the risk-neutralized probabilities and the present value of the underlying.

b) Calculate the present value of a forward contract with exercise price 100.

c) Calculate the present value of a put option with exercise price 110.

d) Discuss the relationship of the state preference/price approach and the one shot binomial option pricing model.