Suppose you learn of a gamble in which your $1 investment (current price of investment) can either grow to $5 with 10% chance or decline to 50 cents with 90% chance. Assuming the risk-free rate to be zero what are the natural and risk-neutral probabilities that you will gain $5?
Cannot be computed without the time to until this uncertainty is resolved
a) 10% and 11.111%
b) 10% and 88.888%
c) 90% and 88.888%
d) 90% and 11.111%