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2. Suppose someone comes to you with the following proposition: I will give you $1500 today. In return, you have to guarantee to pay me
2. Suppose someone comes to you with the following proposition: I will give you $1500 today. In return, you have to guarantee to pay me 2 periods from now whatever the square of the stock price of ABC is at that time. For example, if the stock price ends up at $80, you pay me $(80)2 = $6400. The current stock price of ABC is $20 and the gross interest rate is R =1.25. You know that each period the stock price will either increase by 100% or decrease by 50%.. The stock pays no dividends. Would you accept this offer? Why? 2. Suppose someone comes to you with the following proposition: I will give you $1500 today. In return, you have to guarantee to pay me 2 periods from now whatever the square of the stock price of ABC is at that time. For example, if the stock price ends up at $80, you pay me $(80)2 = $6400. The current stock price of ABC is $20 and the gross interest rate is R =1.25. You know that each period the stock price will either increase by 100% or decrease by 50%.. The stock pays no dividends. Would you accept this offer? Why
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