Answered: Suppose in is measured from time n - 1… | bartleby

Algebra & Trigonometry with Analytic Geometry

Algebra & Trigonometry with Analytic Geometry

13th Edition

ISBN:9781133382119

Author:Swokowski

Publisher:Swokowski

Chapter5: Inverse, Exponential, And Logarithmic Functions

Section: Chapter Questions

Problem 9T

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Suppose in is measured from time n - 1 to n. Let be in, n = 1, 2, 3, ... be i.i.d.
In a certain interest rate model, given p = 0.7,
Pr(in = 0.03) = p, for n = 1, 2, 3, .…...
Pr(in = 0.09) = 1 - p, for n = 1, 2, 3, ....
Calculate the standard deviation of the accumulation of 1 unit invested for 1 year under this interest
rate model.
Give your answer to 3 decimal places.

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