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Suppose there are three economic states next year, with probabilities 0.3, 0.55 and 0.15, respectively. The...

Suppose there are three economic states next year, with probabilities 0.3, 0.55 and 0.15, respectively. The state prices for the three states are given by

(?1,?2,?3)=(0.6,0.2,0.1)

The payoff of a riskless bond in one year is 100 in all three states, that is, [$100, $100, $100]. The payoff of a share of stock in one year is [$85,$100,$110].

(a) What is the bond price today?

(b) What is the stock price today?

(c) What is the expected return of the bond?

(d) What is the expected return of the stock?

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