Homework Answers
Answer:
Let the state prices be p1,p2 and p3
For asset A
10p1+5p2=5(1+r)
For asset B
5p2+10(1-p1-p2)=4.6(1+r)
5.4-4.6r=10p1+5p2
5.4-4.6r=5(1+r)
r=1/24
For asset C
7p1+4p2+4(1-p1-p2)=4.59(1+r)
4-3p1=4.59(25/24)=4.78125
p1=0.78125/3=0.2642
p2=25/24-2(0.2642)=0.5133
p3=0.2223
Risk free rate is 100/24%
Price of asset D
=(5*0.2642+5*0.2223)*24/25
=2.3342
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