In finance, one example of a derivative is a financial asset whose value is determined (derived) from a bundle of various assets, such as mortgages. Suppose a randomly selected mortgagein a certain bundle has a probability of 0.06 of default.(a) What is the probability that a randomly selected mortgage will not default?(b) What is the probability that four randomly selected mortgages will not default assuming the likelihood any one mortgage being paid off is independent of the others? Note: A derivativemight be an investment that only pays when all four mortgages do not default.(c) What is the probability that the derivative from part (b) becomes worthless? That is, at least one of the mortgages defaults.(a) The probability is(Type an integer or a decimal. Do not round.)

We are given that the probability of a mortgage to be default is 0.06 (say p)

Answered: In finance, one example of a derivative…

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

See similar textbooks

Similar questions

7. An investment analyst has tracked a certain blue-chip stock for the past six months and found that on any given day it wither goes up a point or down a point. Furthermore, it went up on 25% of the days and down on 75%. What is the probability that at the close of trading four days from now, the price of the stock will be the same as it is today? Assume that the daily fluctuations are independent events
Suppose a life insurance company sells a $230,000 1-year term life insurance policy to a 20-year-old female for $220. According to the National Vital Statistics Report, 58(21), the probability that the female survives the year is 0.999544. Compute and interpret the expected value of this policy to the insurance company. The expected value is $ (Round to the nearest cent as needed.)
1. Three fair dice are rolled. Let M be the maximum (largest value) of the 3 rolls.What is the expectation E(M)?Please help to explain and solve it into details. I am lost in this class. The topic about the maximum (largest value) seems entirely new to me expecially regarding expection. Please let me know braodly which topic this question falls under so I can try to review some concepts by myself. Thank you very much!
Consider a whole life insurance with annual premiums and a 20-year premium paying term issued to a select life aged 30, with sum insured $200,000 payable at the end of the year of death. (a) Write down an expression for the net future loss random variable. (b) Calculate the net annual premium.
XYZ Corp has filed 100,000 purchase orders during its existence. 1100 of those purchase orders have had errors. Using empirical probability, the probability of the next purchase order that XYZ processes having an error is what.
Suppose that we have test for lung cancer, which correctly identifies those with the cancer 70 % of the time, and mistakenly identifies those without the cancer 5 % of the time. In the cohort of interest, the rate of this cancer is somewhat low: 0.9 %. Find the probability -- a number between 0 and 1 -- that someone diagnosed (testing positive) with this test actually has lung cancer.
A mortgage holding company has found that 0.09 of its mortgage holders default on their mortgage and lose the property. Furthermore, 0.93 of those who default are late on at least two monthly payments over the life of their mortgage as compared to 0.38 of those who do not default. What is the joint probability that a mortgagee has two or more late monthly payments and does not default on the mortgage? 0.3458 0.0342 0.0837 0.8463
(5). pregnancy test gives a false positive result with a probability of 0.11 and a valid positive result with a probability of Seventy percent of all women who submit to pregnancy test are really pregnant. A certain 0.88 (a). If a particular woman's test is positive, what is the probability that she is not pregnant. (b). If a particular woman's test is negative, what is the probability that she is really pregnant. (c). Find the specificity of the test.

Recommended textbooks for you

MATLAB: An Introduction with Applications

Statistics

ISBN:

9781119256830

Author:

Amos Gilat

Publisher:

John Wiley & Sons Inc

Probability and Statistics for Engineering and th…

Statistics

ISBN:

9781305251809

Author:

Jay L. Devore

Publisher:

Cengage Learning

Statistics for The Behavioral Sciences (MindTap C…

Statistics

ISBN:

9781305504912

Author:

Frederick J Gravetter, Larry B. Wallnau

Publisher:

Cengage Learning

MATLAB: An Introduction with Applications

Statistics

ISBN:

9781119256830

Author:

Amos Gilat

Publisher:

John Wiley & Sons Inc

Probability and Statistics for Engineering and th…

Statistics

ISBN:

9781305251809

Author:

Jay L. Devore

Publisher:

Cengage Learning

Statistics for The Behavioral Sciences (MindTap C…

Statistics

ISBN:

9781305504912

Author:

Frederick J Gravetter, Larry B. Wallnau

Publisher:

Cengage Learning

Elementary Statistics: Picturing the World (7th E…

Statistics

ISBN:

9780134683416

Author:

Ron Larson, Betsy Farber

Publisher:

PEARSON

The Basic Practice of Statistics

Statistics

ISBN:

9781319042578

Author:

David S. Moore, William I. Notz, Michael A. Fligner

Publisher:

W. H. Freeman

Introduction to the Practice of Statistics

Statistics

ISBN:

9781319013387

Author:

David S. Moore, George P. McCabe, Bruce A. Craig

Publisher:

W. H. Freeman

SEE MORE TEXTBOOKS