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Problem 2 [10 points] Consider two securities that pay risk-free cash flows over the next...

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Problem 2 [10 points] Consider two securities that pay risk-free cash flows over the next two years and that have the current market prices shown here: Security Price Today Cash Flow in one Year Cash Flow in Two Years $0 B1 B2 $90 $72 $100 $0 | $80 a) What is the no-arbitrage price of a security that pays cash flows of $100 in one year and $80 in two years? [2 points] b) What is the no-arbitrage price of a security that pays cash flows of $100 in one year and $600 in two years? [2 points] Suppose a security with cash flows of $50 in one year and $160 in two years is trading for a price of $185. Is there an arbitrage opportunity available? If yes, explain in detail how you could exploit this arbitrage opportunity. Assume that you cannot trade fractions of shares in (c). [6 points]

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