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Problem 5. The director of a trust fund has $100 000 to invest before the elections. There are options of certificate deposits (CD), governmental bonds, and land. There are two possible equally expected outcomes: either democrats or conservators win. Certificate Deposits yield 4% under democrats and 5% under conservators. Governmental bonds yield correspondingly 10% and 9%. The land yields 10% and 11%. (a) Do there exist state prices? (b) Describe all arbitrage portfolio if exist. (c) If the director is going to loan $100 000 only for one of the three options specified above and invest this sum into to others then what may be her best possible investment and the profit? (d) What is the best possible way for the fund to invest $100000? Problem 5. The director of a trust fund has $100 000 to invest before the elections. There are options of certificate deposits (CD), governmental bonds, and land. There are two possible equally expected outcomes: either democrats or conservators win. Certificate Deposits yield 4% under democrats and 5% under conservators. Governmental bonds yield correspondingly 10% and 9%. The land yields 10% and 11%. (a) Do there exist state prices? (b) Describe all arbitrage portfolio if exist. (c) If the director is going to loan $100 000 only for one of the three options specified above and invest this sum into to others then what may be her best possible investment and the profit? (d) What is the best possible way for the fund to invest $100000

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