Normally, a corporate bond pays the holder an interest rate. A "lottery bond" (these are real things!) pays investors a lower interest rate than the market but gives each investor a small chance to win a large prize. Assume the current discount rate is 5% The first bond is a traditional bond. It costs $100 and pays $6 per year in interest (at the end of each of the 5 years). At the end of 5 years, your $100 is returned. The second bond is a lottery bond. It costs $100, but pays only $2 per year in interest (at the end of each of the 5 years). However, at the end of 5 years, your $100 is returned plus there's a probability p that you also receive a prize of $50,000 [4 points] What would p have to be to make you indifferent between the two bonds today? [2 points] Why might investors be interested in such a bond? [2 points] Why might corporations want to issue such bonds? Normally, a corporate bond pays the holder an interest rate. A "lottery bond" (these are real things!) pays investors a lower interest rate than the market but gives each investor a small chance to win a large prize. Assume the current discount rate is 5% The first bond is a traditional bond. It costs $100 and pays $6 per year in interest (at the end of each of the 5 years). At the end of 5 years, your $100 is returned. The second bond is a lottery bond. It costs $100, but pays only $2 per year in interest (at the end of each of the 5 years). However, at the end of 5 years, your $100 is returned plus there's a probability p that you also receive a prize of $50,000 [4 points] What would p have to be to make you indifferent between the two bonds today? [2 points] Why might investors be interested in such a bond? [2 points] Why might corporations want to issue such bonds