Suppose a treasury bond costs

Reference no: EM131811746

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, 2018

Pays $0: if the Dow Jones Industrial Average is under 22,000 at the closing of Feb 3, 2018

Suppose 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.

Reference no: EM131811746

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