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11:30 AM Mon Feb 10 Done Corp Fin PSET 2 (2 of 3) This problem set consists of four questions. You can obtain a maximum of 40 points. Question 1 (16 points Consider an economy with three assets and two dates (t-0,1) and three states at t-1. Let 1 2 3 X-214 be the matrix of asset payoffs at t-1 and p the vector of asset prices at 1-0. Suppose p=2 (a) Is there an arbitrage? [3pl (b) If yes, find an arbitrage portfolio. [3pl Suppose p=1.2. (c) Does an arbitrage portfolio exist? [2pl (d) 1 and what is the to Can you create a portfolio with payoff of (120, 190, 220) at price of such a portfolio? 14pl (e) Determine the implicit) risk free rate in this economy. [4pl Question 2 18 points Consider an economy with two dates (t=0,1) and at t=1 there are three states. The following 11:30 AM Mon Feb 10 Done Corp Fin PSET 2 (2 of 3) This problem set consists of four questions. You can obtain a maximum of 40 points. Question 1 (16 points Consider an economy with three assets and two dates (t-0,1) and three states at t-1. Let 1 2 3 X-214 be the matrix of asset payoffs at t-1 and p the vector of asset prices at 1-0. Suppose p=2 (a) Is there an arbitrage? [3pl (b) If yes, find an arbitrage portfolio. [3pl Suppose p=1.2. (c) Does an arbitrage portfolio exist? [2pl (d) 1 and what is the to Can you create a portfolio with payoff of (120, 190, 220) at price of such a portfolio? 14pl (e) Determine the implicit) risk free rate in this economy. [4pl Question 2 18 points Consider an economy with two dates (t=0,1) and at t=1 there are three states. The following

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