Question
We have asset A and asset B whose payoff two years from now depends on the state of the economy as follows: Boom Recession asset
We have asset A and asset B whose payoff two years from now depends on the state of the economy as follows:
| Boom | Recession | |
| asset A | 50 | 45 |
| asset B | 20 | 15 |
Currently, asset A sells for $48 and asset B sells for $18. Can we make an arbitrage using these two assets? If so, show the arbitrage strategy and resulting cash flows.
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Public Finance A Contemporary Application Of Theory To Policy
Authors: David N Hyman
8th Edition
0324259700, 978-0324259704
