The table below shows the no-arbitrage prices of securities A and B. The economy is equally likely to strengthen or weaken in one year.

		Cash Flow in One Year
Security	Market Price Today	Weak economy	Strong Economy
A	231	0	600
B	346	600	0

1. What are the payoffs of a portfolio of one share of security A and one share of security B?
2. What is the market price of this portfolio? What expected return will you earn from holding this portfolio?
3. What is the risk-free interest rate?

2You are the beneficiary of a trust fund that will start paying you cash flows in five years. The cash flows will be $25,000 per year and will continue for 40 years. If the interest rate is 4% per year, what is the value needed in the trust fund now to fund these cash flows?