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The table here shows the no-arbitrage prices of securities A and B that we calculated. (Click on the following icon in order to copy its
The table here shows the no-arbitrage prices of securities A and B that we calculated. (Click on the following icon in order to copy its contents into a spreadsheet.) Security Security A Security B Market Price Today $232 $346 Cash Flow in One Year Weak Economy Strong Economy $4 $604 $604 $4 a. What are the payoffs of a portfolio of one share of security A and one share of security B? b. What is the market price of this portfolio? What expected return will you earn from holding this portfolio? a. What are the payoffs of a portfolio of one share of security A and one share of security B? (Select the best choice below.) A. Portfolio A+B pays $578 in both cases (i.e., it is risk free). B. Portfolio A+B pays $608 in both cases (i.e., it is risk free). C. Portfolio A+B pays $4 in both cases (i.e., it is risk free). D. Cannot be determined without the discount rate. b. What is the market price of this portfolio? The market price of this portfolio will be $ (Round to the nearest dollar.) What expected return will you earn from holding this portfolio? The expected return is %. (Round to two decimal places.)
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