Question
My brother just charged his friend $900 for offering a bet: if the temperature of tomorrow is above 66, my brother will pay 1.5 times
My brother just charged his friend $900 for offering a bet: if the temperature of tomorrow is above 66, my brother will pay 1.5 times $900 to his friend; if the temperature is below 66 tomorrow, my brother will pay 0.5 times $900 to his friend. I do not want my brother to lose money when tomorrow's temperature is above 66 and decide to buy an insurance that will make my brother break even when tomorrow's temperature is above 66 (in other words, the insurance policy will pay my brother 0.5 times $900 when tomorrow's temperature is above 66). If risk free rate is zero, how much should I pay for this insurance (keep two decimal places)?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started