Risky Versus Risk-Free Cash Flows The table here shows the no-arbitrage prices of securities A and B
Risky Versus Risk-Free Cash Flows
The table here shows the no-arbitrage prices of securities A and B that we calculated.
Cash Flow in One Year
Security
Market Price Today
Weak Economy
Strong Economy
Security A
231
0
600
Security B
346
600
0
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?
