dse 2010

Posted by SHIKHA on Apr 03, 2012; 7:27pm
URL: http://discussion-forum.276.s1.nabble.com/dse-2010-tp7434260.html

Suppose there is only one future period and (the presently unknown) state of the world in that period can be either s1 or s2. The future return on a share of a given company is 5 in state s1 and -1 in state s2. The future return on a government bond is independent of the state. Suppose a third asset is offered on the market whose return is 3 in state s1 and 0 in state s2. The current prices of the stock and the bond are 3 and 1 respectively. If the price of the new asset rules out the possibility of any arbitrage profit, what is the price of the new asset?
a. It depends on probabilities of the future states
b. Strictly between 2 and 3
c. Strictly between 1 and 2
d. 2

plz help amit sir....
i know its being solved in earlier posts...bt i m nt able to understand ....help!!!!