14. The following securities pay risk-free cash flows over the next three years: Cash Flows Security Price Today In 1 Year In 2 years In 3 Years B1 95 100 0 0 B2 B3 80 80 90 0 100 0 0 0 100 C ? 200 400 300 D 1,075 400 200 600 (a) What is the no-arbitrage price of security C? (b) Is security D correctly priced? If so, explain why. If not, demonstrate how you can exploit the arbitrage opportunity. (c) Determine the spot rates (to the nearest 0.01%) and the discount factors for this market.

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The promised cash flows of three securities are listed below. If the cash flows are risk-free, and the risk-free interest rate is 4.5%, determine the no-arbitrage price of each security before the first cash flow is paid. (Click on the following icon in order to copy its contents into a spreadsheet.) Security A B C Cash Flow Today (S) 700 0 1,400 The no-arbitrage price of security A is S Cash Flow in One Year ($) 700 1,400 0 (Round to the nearest cent.)

Consider two securities that pay risk-free cash flows over the next two years and that have the current market prices shown here: (Click on the following icon in order to copy its contents into a spreadsheet.) Security B1 B2 Price Today $190 $176 Cash Flow in One Year $200 0 Cash Flow in Two Years 0 $200 a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $200 in two years? b. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $1,800 in two years? c. Suppose a security with cash flows of $100 in one year and $200 in two years is trading for a price of $260. What arbitrage opportunity is available? ... a. What is the no-arbitrage price of a security that pays cash flows of $200 in one year and $200 in two years? The no-arbitrage price is $ (Round to the nearest dollar.)

in order to The table here shows the no-arbitrage prices of securities A and B that we calculated. (Click on the following icon copy its contents into a spreadsheet.) Cash Flow in One Year Security Market Price Today Weak Economy Strong Economy Security A Security B $232 $346 $4 $604 $604 $4 a. What are the payoffs of a portfolio of one share of security A and one share of security B? b. What is the market price of this portfolio? What expected return will you earn from holding this portfolio? a. What are the payoffs of a portfolio of one share of security A and one share of security B? (Select the best choice below.) A. Portfolio A+B pays $578 in both cases (i.e., it is risk free). B. Portfolio A+B pays $608 in both cases (i.e., it is risk free). C. Portfolio A +B pays $4 in both cases (i.e., it is risk free). D. Cannot be determined without the discount rate. b. What is the market price of this portfolio? The market price of this portfolio will be $. (Round to the nearest dollar.)…

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Assume investors are indifferent among security maturities. Today, the annualized 2-year interest rate is 2.20 percent, and the 1-year interest rate is 2 percent. What is the forward rate according to the pure expectations theory?   Group of answer choices   2.25% 2.20% 2.00% 2.40%

Suppose you observe the following situation: Security Pete Corporation Repete Company Beta 1.25 .87 Expected Return 1080 .0820 a. Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the risk-free rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected return on market using Pete Corporation a. Expected return on market using Repete Company b. Risk-free rate de de % % %

Suppose you observe the following situation: Security Pete Corporation Repete Company Beta 1.70 1.39 a. Expected return on market b. Risk-free rate Expected Return .180 .153 a. Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the risk-free rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % %

Suppose you observe the following situation: Security Beta Expected Return Pete Corp. 1.50 0.160 Repete Co. 1.19 0.133 Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Expected Return on Market Pete Corp. % Repete Co. % What is the risk-free rate? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Risk-free rate