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...

See similar textbooks

Similar questions

Example 1 : Find the probability of drawing 2 red balls in succession from a bag containing 4 red and 5 black balls when the ball that is drawn first is (i) not replaced (ii) replaced.
A company gives each worker a cash bonus every Friday, randomly giving a worker an amount with these probabilities: $10 0.9, $50 0.1. Over many weeks, what is a worker 's expected weekly bonus?
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!
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 company gives each worker a cash bonus every Friday, randomly giving a worker an amount with these probabilities: $10 0.9, $50 0.1 Over many weeks, what is a worker's expected weekly bonus?
Consider the case of two financial assets and three market conditions (states). The tablebelow gives the respective probability for each market condition and the return of each assetin each one of them. Market Conditions State Recession Normal Expansion Probability of state 30% 40% 30% Return of asset A -30% 20% 55% Return of asset B -10% 70% 0% a. Derive the expected returns and the standard deviation of returns for the two assetsabove.
Suppose a life insurance company sells a $220,000 one-year term life insurance policy to a 24-year-old female for $300. The probability that the female survives the year is 0.999547. Compute and interpret the expected value of this policy to the insurance company. (a) The expected value is ___ (b) What interpretation of the expected value is correct?
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

Recommended textbooks for you

A First Course in Probability (10th Edition)

Probability

ISBN:

9780134753119

Author:

Sheldon Ross

Publisher:

PEARSON

A First Course in Probability

Probability

ISBN:

9780321794772

Author:

Sheldon Ross

Publisher:

PEARSON

A First Course in Probability (10th Edition)

Probability

ISBN:

9780134753119

Author:

Sheldon Ross

Publisher:

PEARSON

A First Course in Probability

Probability

ISBN:

9780321794772

Author:

Sheldon Ross

Publisher:

PEARSON

SEE MORE TEXTBOOKS