Suppose that we can describe the world using two states and that two assets are available, asset K an asset L. We assume the asset's future prices have the following distribution State Future Price Asset L 1 $60 2 $30 The current price of asset K is $50, and the current price of asset Lis $50. Future Price Asset K $55 $45

Suppose that we can describe the world using two states and that two assets are available, asset K an asset L. We assume the asset's future prices have the following distribution State Future Price Asset L 1 $60 2 $30 The current price of asset K is $50, and the current price of asset Lis $50. Future Price Asset K $55 $45

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 24P: Translate the following monetary payoffs into utilities for a decision maker whose utility function...

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Suppose that we can describe the world using two states and that two assets are available, asset K an asset L. We assume the asset’s future prices have the following distribution State Future Price Asset K Future Price Asset L 1 $55 $60 2 $45 $30 The current price of asset K is $50, and the current price of asset L is $50. 1. What are the values of the unit claims (C1 and C2 )?
Suppose that we can describe the world using two states and that two assets are available, asset K an asset L. We assume the asset’s future prices have the following distribution State Future Price Asset K Future Price Asset L 1 $55 $60 2 $45 $30 The current price of asset K is $50, and the current price of asset L is $50. What is the risk free rate implied by these assets?
Using the given data, calculate the risk free rate implied by these assets.
Suppose that we can describe the world using two states and that two assets are available, asset X an asset Y. We assume the asset’s future prices have the following distribution State Future Price Asset X Future Price Asset Y 1 $25 $50 2 $20 $40 The values of the unit claims implied by these assets are such that: A. C1 and C2 cannot be determined B. C1=1 and C2=1 C. C1=1, but we cannot determine C2 D. C1=5/4 and C2=5/4
1. What are the values of the unit claims (C1 and C2)? 2. What is the risk free rate implied by these assets?
What is the risk neutral probability of state 1?
Given the data above, what is the risk neutral probability of state 1?
Use the following table to calculate the expected return from the asset. Return Probability 0.1 0.25 0.2 0.5 0.25 0.25 20.00% 18.75% 17.50% 15.00%
Suppose that in a two-period Arrow-Debreu economy with three states, the state probabilities are T₁ = 0.1, 7₂ = 0.55, 73=0.35 and the state prices are 9₁ = 0.2, 9₂=0.5, 93 = 0.8 for states 1, 2, and 3 respectively. Assume that an asset has the state-contingent dividend given in the following table, and the observed price of the asset is 4.1. State-contingent dividend State 1 State 2 State 3 Asset's dividend 5 3 2 According to information above, which one of the following statements regarding arbitrage opportunities is correct? O A. In this case, arbitrage opportunities do not exist. O B. In this case, arbitrage opportunities exist because the asset is over-priced. O c. In this case, arbitrage opportunities exist because the asset is under-priced. O D. Due to insufficient information, it is inconclusive whether arbitrage opportunities exist or not.
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I've invited you to fill out a form: Return on a single asset Find the arithmetic mean and the geometric mean of an asset whose closing prices are as follows: Day CP 1 100 2 108 3 105 4 99 5 102 6 106 7 110 * 1% and 0.97% 2% and 1.97% 2.09% and 1.99% 1.5% and 1.5% 1.70% and 1.60%
The probability distributions of expected returns for the assets are shown in the following table: Asset A Prob Return 0.2 -5% 0.4 10% 0.4 15% a) Calculate the expected return for asset A. b) Calculate the standard deviation for asset A.