What is the price implied for an asset providing $100 in state 1 and $50 in state 2? Suppose that we can describe the world using two states and that two assets are available, asset Kan asset L. We assume the asset's future prices have the following distributionStateFuture Price Asset KFuture Price Asset L1$55$602$45$30The current price of asset K is $50, and the current price of asset L is $50.

price implied can be calculated using the formula: Price Implied = future value in state 1 x Risk -…

Answered: What is the price implied for an asset…

Business

Finance

What is the price implied for an asset providing $100 in state 1 and $50 in state 2?

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...

See similar textbooks

Related questions

Q: The difference between book value of the asset with the proceeds receive from its sale, with result…

A: Assets: It refers to the economic value of all resources owned by the business at a given point in…

Q: If an asset is $100 in state 1, and is $50 in state 2, what is it’s implied price?

A: Implied PriceThe term "Implied Price" refers to the average of the closing prices of the shares of…

Q: Explain what is meant by future deductible amounts. Why is it important to understand this concept?

A: Future deductible amounts refer to the expenses that a business incurs in the current period but…

Q: What entry is made when selling a fixed asset?

A: Following entry is passed when selling the fixed assets:

Q: What are the Gain Taxes on Asset Disposals?

A: When a asset is disposed, if the value realised on such disposal is more than the carrying amount of…

Q: When does a buyer-lessor recognize a financial asset from a sale and leaseback transaction? Fair…

A: If sale price is greater than the fair value than the ROU asset should be recognised...

Q: For assets acquired on credit or by installment, the cost or fair value is equal to: A. cash…

A: The fixed assets are the assets acquired by the business to use for long run.

Q: Which of the following costs are capitalized when purchasing a piece of equipment? a. The invoiced…

A: As per IAS 16 when a asset is purchased then capitalize any costs directly attributable to bringing…

Q: According to the fair value principle, assets and liabilities should be reported Select answer from…

A: The fair value principle is an accounting concept that aims to provide a more accurate…

Q: Describe an asset held for sale and state three conditions that must apply?

A: Asset held for sale::: It is a current asset or disposal group to be classified as held for sale if…

Q: Assuming interest costs related to an asset qualify for interest capitalization, which of the…

A: Option 4 is correct The amount that should be capitalised is the lower of actual interest cost…

Q: What is the cost of right of use asset? 2. What is the gain on right transferred to the…

A: Cost of right of use asset 1468000 Gain on right transferred to buyer-lessor 533000

Q: What is the motivation for a sale-leaseback of the land?

A: Lease is the agreement between the two parties that is lesser and lessee where lesser allows the…

Q: Which of the following best describes the higher of an asset's net selling price and its value in…

A: Asset's net selling price is the amount obtainable from the sale of assets less any disposal cost.…

Q: Describe the Depreciation Allowance under Inflation?

A: Depreciation: Depreciation is an accounting method to calculate the value of a tangible asset during…

Q: Which of the following is not a fixed cost?a. Direct materialsb. Depreciationc. Lease charged.…

A: Fixed cost is the cost which will be borne by the company irrespective of the units produced.

Q: Assuming cost model was used for the Real Property B, what is the carrying value of the property as…

A: Under cost model, an asset is valued and carried at cost less depreciation in the subsequent years.…

Q: Cost of property asset minus the residual value is equal to net book value.

A: Cost of Property - It Includes the purchase Price of the Property. stamp duty, and other cost…

Q: The generally accepted accounting principle that supports recording the value of a property at the…

A: Correct answer is option 'D' i.e. cost principle. Explanation: Under US GAAP As per cost principle…

Q: The difference between book value of the asset with the proceeds received from its sale, will result…

A: The book value of an asset is the value of the asset calculated by deducting the accumulated…

Q: It is the initial cost of acquiring an asset, plus sales tax, transportation and normal costs of…

A: Cost of the asset is the cost which has been paid by the company in order to buy the asset and on…

Q: What are the factor payments for land, labor, and capital?

A: The question is based on the concept of factor payment ,in financial economics factors are consider…

Q: 1. What amount should be recorded initially as cost of the right of use asset? 2. What is the…

A: Sometimes company gets the asset on lease means the ownership of the asset remains with the actual…

Q: What is the net book value of asset

A: Calculation given in next step Net book value is the historical cost of an asset minus the amount…

Q: What is the price of an asset providing $100 in state 1 and $50 in state 2?

A: Future Price:The futures price is an amount decided upon in a contract (known as a futures contract)…

Q: Under normal circumstances, will the carrying value of a long-term asset be equal to its market…

A: Assets are recorded at historical figures.

Q: According to historical cost principle, the assets and liabilities should be reported (tick…

A: Assets and liabilities are the part of the balance sheet of a company. They help in determining the…

Question

What is the price implied for an asset providing $100 in state 1 and $50 in state 2?

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.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: solution:

VIEW

Step 2: calculate of risk-neutral probability of state:

VIEW

Step 3: calculate price implied:

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

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.
4
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.