Suppose a Treasury bond costs $100 and promises
June 7th, 2024
Suppose a Treasury bond costs $100 and promises a payment of $120 on Feb 3, 2018. A bond from Las Vegas, also priced at $100, has the following payout scheme:Pays $X: if the Dow Jones Industrial Average is at least 22,000 at the closing of Feb 3, 2018Pays $0: if the Dow Jones Industrial Average is under 22,000 at the closing of Feb 3, 2018Suppose the widely accepted projection is that the Dow will surpass the 22,000 threshold with 70% certainty. What values of X will make this offer acceptable? Please explain your rationale.