Introductory Statistics
1st Edition
ISBN: 9781938168208
Author: Barbara Illowsky, Susan Dean
Publisher: OpenStax College
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Textbook Question
Chapter 1, Problem 85H
Use (he following information o answer the next two exercises: Table 1.38 contains data on hurricanes that have made direct hits on the U.S. Between 1831 and 2004. A hurricane is given a strength category rating based on the minimum wind speed generated by the storm.
85. What is the relative frequency of direct hits that were category 4 hurricanes? a. 0.0768
b. 0.0659
c. 0.2601
d. Not enough information to calculate
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We consider the one-period model studied in class as an example. Namely, we assumethat the current stock price is S0 = 10. At time T, the stock has either moved up toSt = 12 (with probability p = 0.6) or down towards St = 8 (with probability 1−p = 0.4).We consider a call option on this stock with maturity T and strike price K = 10. Theinterest rate on the money market is zero.As in class, we assume that you, as a customer, are willing to buy the call option on100 shares of stock for $120. The investor, who sold you the option, can adopt one of thefollowing strategies: Strategy 1: (seen in class) Buy 50 shares of stock and borrow $380. Strategy 2: Buy 55 shares of stock and borrow $430. Strategy 3: Buy 60 shares of stock and borrow $480. Strategy 4: Buy 40 shares of stock and borrow $280.(a) For each of strategies 2-4, describe the value of the investor’s portfolio at time 0,and at time T for each possible movement of the stock.(b) For each of strategies 2-4, does the investor have…
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Chapter 1 Solutions
Introductory Statistics
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