Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

At the end of the day, PayME stock will be worth 100(80% probability) or 110 (20% probability). A market-maker believes that 90% of her incoming

At the end of the day, PayME stock will be worth 100(80% probability) or 110 (20% probability). A market-maker believes that 90% of her incoming traders are uninformed, and equally likely to buy or sell; the remaining 10% are informed about end-of-day value. At what ask price does the market-maker just break even?

Answer: 102.34

^^^please explain how they got this answer. Thank you!!!

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Accounting

Authors: Donald Kieso, Jerry Weygandt, Terry Warfield, Nicola Young,

10th Canadian Edition, Volume 1

978-1118735329, 9781118726327, 1118735323, 1118726324, 978-0176509736

Students also viewed these Economics questions