Could you please help me understand as to why the price of portfolio B is S0? There is an income of c at t. Price of portfolio is the present value of the future payout right? Shouldn't it S0 + ce^(-t)? I am just trying to understand why this is not the case.
Hi Adithyan I think it is because the cash investment doesn't happen until time t1. At time 0, no money is set aside to meet this cash investment at time t1. So at time 0, Portfolio B just consists of the share, and the value of this is S0. Kind regards Anna
