X’s current stock is $10 per share. X will not pay dividends and faces the following conditional prices in a year:
In the Good state in a year, Y’s conditional price is $5 with an associated 25% return. Y will pay a dividend of $1 with certainty in a year (with Probability=1).
The equally weighted portfolio (50%/50%) that includes Y and X will be riskless if Y’s conditional prices in a year are:
A $15 in medium, $10 in low
B $5 in medium, $5 in low
C $15 in medium, $20 in low
D $10 in medium, $15 in low. Get Finance homework help today