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?