easy   Finance

Investment Arbitrage

A release-checked easy problem for training Arbitrage.

Question

You're in a market, you can either invest in a stock or bet at the casino in $\$100$ increments. Each increment is a unit, you can't purchase a fraction of a unit. If you invest in the stock, then it goes up or down. If it goes up in value, you gain an additional $100$ dollars per unit. If it goes down, you lose $50$ dollars per unit. $$$$ Also, you can bet on whether the stock will go up or down at the casino, where you either win $100$ per unit if you're right or lose all $100$ if not. Devise a strategy where you will always make a profit. Find the guaranteed profit if you hold a minimal amount of total units.

Practice focus

This Finance problem is tagged Arbitrage. State the random variables and conditioning information explicitly, then check the result against boundary cases before opening hints or a solution.

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