KIn finance, one example of a derivative is a financial asset whose value is determined (derived) from a bundleof various assets, such as mortgages. Suppose a randomly selected mortgage in a certain bundle has aprobability of 0.07 of default.(a) What is the probability that a randomly selected mortgage will not default?(b) What is the probability that nine randomly selected mortgages will not default assuming the likelihood anyone mortgage being paid off is independent of the others? Note: A derivative might be an investment that onlypays when all nine mortgages do not default.(c) What is the probability that the derivative from part (b) becomes worthless? That is, at least one of themortgages defaults.(a) The probability is 0.93(Type an integer or a decimal. Do not round.)(b) The probability is 0.5204(Round to four decimal places as needed.)(c) The probability is(Round to four decimal places as needed.).…

We have given that P(default) = 0.07

Answered: K In finance, one example of a…

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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