Security a pays 30 if state 1 occurs and 10 if state 2, Financial Management

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Security a pays 30 if state 1 occurs and 10 if state 2

Security A pays $30 if state 1 occurs and $10 if state 2 occurs. Security B pays $20 if state 1 occurs and $40 if state 2 occurs. The price of security A is $5 and the price of security B is $10.

a) Set up the payoff table for securities A and B.

b) Determine the prices of the two pure securities.

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Financial Management: Security a pays 30 if state 1 occurs and 10 if state 2

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Financial Management: Security a pays 30 if state 1 occurs and 10 if state 2

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