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Question 22

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Use the following information for questions .
There are two possible states of nature, s = 1, and s = 2, over the next period.There are two securities i and j) whose current prices are $10 and $15, respectively.Security i has a payoff of $10 in state s = 1, and $16 in state s = 2, while security j provides $25 in state s = 1 and $8 in state s = 2.
-What are the prices of the Arrow-Debreu securities in the two states?


A) 0.25 in state s = 1 and 0.675 in state s = 2.
B) 0.3 in state s = 1 and 0.6 in state s = 2.
C) 0.4 in state s = 1 and 0.75 in state s = 2.
D) 0.5 in state s = 1 and 0.3125 in state s = 2.
E) insufficient information.

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