Find the risk-free rate on the state prices

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Question: Suppose that the market portfolio has mean μ = 15% and standard deviation σ = 20%.

a. If the risk-free rate of interest is 8% calculate the 1-period state prices for an "up" and a "down" state.

b. Show the effect (in a data table) of the risk-free rate on the state prices.

c. Show the effect of the σ on the state prices.

Reference no: EM131453889

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