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The table below shows the no-arbitrage prices of securities A and B and the cash flows for security C under both the weak economy and
The table below shows the no-arbitrage prices of securities A and B and the cash flows for security C under both the weak economy and the strong economy scenarios. The risk-free interest rate is 6.1%. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) a. Security C has the same payoffs as what portfolio of the securities A and B ? b. Security D has the same payoffs as what portfolio of the securities A and B ? c. What is the no-arbitrage price of security C ? d. What is the no-arbitrage price of security D ? e. What is the expected return of security C if both states are equally likely? What is its risk premium? f. What is the expected return of security D if both states are equally likely? What is its risk premium? g. What is the difference between the return of security C when the economy is strong and when it is weak? h. If security C had a risk premium of 9.8%, what arbitrage opportunity would be available? i. What is the difference between the return of security D when the economy is strong and when it is weak? j. If security D had a risk premium of 9.8%, what arbitrage opportunity would be available
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