# Problem 17: Prediction Markets – USMA D/Math Problem of the Week – Submission Deadline: April 3, 2008 at 1600

HubDub

And we have a winner, Chris Hibbert of Zocalo:

You can buy Giuliani on Q2 for .12 and sell Giuliani on Q1 for .52, and have a combination that will pay \$1 no matter what for an outlay of .64. We want to take that .36 gain and turn it into \$100. 100 / .36 = 277.777&#8230-

So we&#8217-ll buy 278 shares of each.The 278 shares cost 278 * (.12 + .52), which is 177.92. Whatever happens, you&#8217-ll win \$278, which puts you ahead by \$100.

## 2 thoughts on “Problem 17: Prediction Markets – USMA D/Math Problem of the Week – Submission Deadline: April 3, 2008 at 1600”

1. Chris Hibbert said:

You can buy Giuliani on Q2 for .12 and sell Giuliani on Q1 for .52, and have a combination that will pay \$1 no matter what for an outlay of .64. We want to take that .36 gain and turn it into \$100. 100 / .36 = 277.777… So we’ll buy 278 shares of each.

The 278 shares cost 278 * (.12 + .52), which is 177.92. Whatever happens, you’ll win \$278, which puts you ahead by \$100.

2. Chris Hibbert said:

You can buy Giuliani on Q2 for .12 and sell Giuliani on Q1 for .52, and have a combination that will pay \$1 no matter what for an outlay of .64. We want to take that .36 gain and turn it into \$100. 100 / .36 = 277.777… So we’ll buy 278 shares of each.

The 278 shares cost 278 * (.12 + .52), which is 177.92. Whatever happens, you’ll win \$278, which puts you ahead by \$100.