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Question 9 (20 points) Use the table for the question(s) below. Market Price Cash Flow in One Year Security Today if Poor Economy if Good
Question 9 (20 points) Use the table for the question(s) below. Market Price Cash Flow in One Year Security Today if Poor Economy if Good Economy Kappa 400 1250 0 Gamma 800 0 1250 Delta 400 0 625 Omega ??? 625 1250 There are two possible states of the Economy, either poor or good. Each is equally likely to occur. Use the law of one price to answer this question: What is the price of Omega today if there are no arbitrage opportunities? A) $1,800 B) $1,650 C) $1,000 D) $8,700
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