Consider a state-space model for the securities market, with two dates, date 0 and 1, defined as follows: There are two economic states at date 1. state a and state b. The probability for state is 0.52, and the probability for state is 0.48. There is a risk-free bond traded in this market, with the date-I payoff of $ 110.33, independent of the state. The date-0 price of the bond is $100. There is also a risky stock traded in the market. The date-I payoff of stock is $203.34 in state a and $72.55 in state b. The date-0 price of the stock is $100. Use the above to answer the following (A) - (D). What is the expected net rate of return on the bond? % unanswered
Consider a state-space model for the securities market, with two dates, date 0 and 1, defined as follows: There are two economic states at date 1. state a and state b. The probability for state is 0.52, and the probability for state is 0.48. There is a risk-free bond traded in this market, with the date-I payoff of $ 110.33, independent of the state. The date-0 price of the bond is $100. There is also a risky stock traded in the market. The date-I payoff of stock is $203.34 in state a and $72.55 in state b. The date-0 price of the stock is $100. Use the above to answer the following (A) - (D). What is the expected net rate of return on the bond? % unanswered
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:Consider a state-space model for the securities market, with two dates, date 0 and 1, defined as follows:
There are two economic states at date 1, state a and state b. The probability for state is 0.52, and the
probability for state is 0.48. There is a risk-free bond traded in this market, with the date-1 payoff of $
110.33, independent of the state. The date-0 price of the bond is $100. There is also a risky stock traded in
the market. The date-I payoff of stock is $203.34 in state a and $72.55 in state b. The date-0 price of the
stock is $100. Use the above to answer the following (A) - (D). What is the expected net rate of return on
the bond? % unanswered
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