The following table shows today’s prices of security A and B and future payoffs of security A, B, and C for each state at maturity time. Compute the price today of security C. If C is priced at $68, what kind of arbitrage takes place? If C is priced at $60, what kind of arbitrage takes place?
|
Asset |
Price Today |
Future Payoff State 1 |
Future Payoff State 2 |
|
A |
$70 |
$50 |
$100 |
|
B |
$60 |
$30 |
$120 |
|
C |
$39 |
$111 |