ELEMENTARY STATISTICS W/CONNECT >C<
3rd Edition
ISBN: 9781307235012
Author: Navidi
Publisher: MCG/CREATE
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Question
Chapter 13.3, Problem 21E
a.
To determine
To find:The regression equation for the data.
a.
Expert Solution
Answer to Problem 21E
The regression equation for the data is
Explanation of Solution
Given information: The data is shown below.
| 31.3 | 50 | 19 | 4.0 | 37.4 | 60 | 30 | 5.0 | 24.0 | 60 | 24 | 4.0 | 51.0 | 80 | 34 | 7.5 |
| 56.9 | 90 | 38 | 8.0 | 43.3 | 60 | 26 | 7.0 | 36.2 | 50 | 21 | 7.0 | 34.3 | 60 | 22 | 2.5 |
| 43.1 | 70 | 28 | 6.5 | 36.3 | 70 | 25 | 7.5 | 26.5 | 50 | 17 | 2.0 | 31.5 | 60 | 24 | 5.0 |
| 41.5 | 70 | 25 | 5.5 | 38.4 | 70 | 31 | 5.5 | 47.1 | 80 | 34 | 8.5 | 33.2 | 60 | 23 | 4.0 |
| 39.0 | 60 | 26 | 6.5 | 41.5 | 60 | 27 | 7.5 | 38.1 | 70 | 27 | 5.5 | 39.2 | 60 | 29 | 6.5 |
| 40.9 | 70 | 29 | 5.0 | 36.l | 60 | 23 | 6.0 | 33.5 | 60 | 24 | 2.5 | 46.7 | 70 | 27 | 7.5 |
| 35.9 | 60 | 23 | 5.5 | 38.5 | 60 | 23 | 6.0 | 43.6 | 70 | 27 | 10.0 | 30.4 | 70 | 32 | 4.0 |
| 43.5 | 70 | 28 | 5.5 | 42.4 | 60 | 24 | 9.0 | 41.0 | 80 | 32 | 6.5 | 43.2 | 60 | 25 | 5.5 |
| 47.9 | 80 | 34 | 6.5 | 46.5 | 70 | 31 | 5.5 | 50.2 | 50 | 26 | 9.0 | 30.6 | 60 | 26 | 3.5 |
| 33.8 | 70 | 26 | 4.5 | 43.1 | 80 | 32 | 6.0 | 34.4 | 50 | 22 | 4.0 | 43.3 | 70 | 28 | 7.5 |
| 41.1 | 70 | 26 | 8.0 | 50.8 | 60 | 26 | 10.0 | 47.9 | 80 | 34 | 6.5 | 32.4 | 60 | 22 | 5.5 |
| 38.7 | 70 | 26 | 8.0 | 44.2 | 70 | 28 | 4.5 | 46.2 | 50 | 21 | 10.0 | 35.5 | 60 | 22 | 4.5 |
Calculation:
The MINITAB is shown below,
Figure-1
From Figure-1 it is clear that the regression equation is
b.
To determine
To find: The value of variable
b.
Expert Solution
Answer to Problem 21E
The value of variable
Explanation of Solution
Given information: The data is shown below.
| 31.3 | 50 | 19 | 4.0 | 37.4 | 60 | 30 | 5.0 | 24.0 | 60 | 24 | 4.0 | 51.0 | 80 | 34 | 7.5 |
| 56.9 | 90 | 38 | 8.0 | 43.3 | 60 | 26 | 7.0 | 36.2 | 50 | 21 | 7.0 | 34.3 | 60 | 22 | 2.5 |
| 43.1 | 70 | 28 | 6.5 | 36.3 | 70 | 25 | 7.5 | 26.5 | 50 | 17 | 2.0 | 31.5 | 60 | 24 | 5.0 |
| 41.5 | 70 | 25 | 5.5 | 38.4 | 70 | 31 | 5.5 | 47.1 | 80 | 34 | 8.5 | 33.2 | 60 | 23 | 4.0 |
| 39.0 | 60 | 26 | 6.5 | 41.5 | 60 | 27 | 7.5 | 38.1 | 70 | 27 | 5.5 | 39.2 | 60 | 29 | 6.5 |
| 40.9 | 70 | 29 | 5.0 | 36.l | 60 | 23 | 6.0 | 33.5 | 60 | 24 | 2.5 | 46.7 | 70 | 27 | 7.5 |
| 35.9 | 60 | 23 | 5.5 | 38.5 | 60 | 23 | 6.0 | 43.6 | 70 | 27 | 10.0 | 30.4 | 70 | 32 | 4.0 |
| 43.5 | 70 | 28 | 5.5 | 42.4 | 60 | 24 | 9.0 | 41.0 | 80 | 32 | 6.5 | 43.2 | 60 | 25 | 5.5 |
| 47.9 | 80 | 34 | 6.5 | 46.5 | 70 | 31 | 5.5 | 50.2 | 50 | 26 | 9.0 | 30.6 | 60 | 26 | 3.5 |
| 33.8 | 70 | 26 | 4.5 | 43.1 | 80 | 32 | 6.0 | 34.4 | 50 | 22 | 4.0 | 43.3 | 70 | 28 | 7.5 |
| 41.1 | 70 | 26 | 8.0 | 50.8 | 60 | 26 | 10.0 | 47.9 | 80 | 34 | 6.5 | 32.4 | 60 | 22 | 5.5 |
| 38.7 | 70 | 26 | 8.0 | 44.2 | 70 | 28 | 4.5 | 46.2 | 50 | 21 | 10.0 | 35.5 | 60 | 22 | 4.5 |
Calculation:
From Figure-1 it is clear that the regression equation is
Substitute the values in above equation.
Thus, the value of variable
c.
To determine
To find: The confidence interval.
c.
Expert Solution
Answer to Problem 21E
The confidence intervalis
Explanation of Solution
Given information: The data is shown below.
| 31.3 | 50 | 19 | 4.0 | 37.4 | 60 | 30 | 5.0 | 24.0 | 60 | 24 | 4.0 | 51.0 | 80 | 34 | 7.5 |
| 56.9 | 90 | 38 | 8.0 | 43.3 | 60 | 26 | 7.0 | 36.2 | 50 | 21 | 7.0 | 34.3 | 60 | 22 | 2.5 |
| 43.1 | 70 | 28 | 6.5 | 36.3 | 70 | 25 | 7.5 | 26.5 | 50 | 17 | 2.0 | 31.5 | 60 | 24 | 5.0 |
| 41.5 | 70 | 25 | 5.5 | 38.4 | 70 | 31 | 5.5 | 47.1 | 80 | 34 | 8.5 | 33.2 | 60 | 23 | 4.0 |
| 39.0 | 60 | 26 | 6.5 | 41.5 | 60 | 27 | 7.5 | 38.1 | 70 | 27 | 5.5 | 39.2 | 60 | 29 | 6.5 |
| 40.9 | 70 | 29 | 5.0 | 36.l | 60 | 23 | 6.0 | 33.5 | 60 | 24 | 2.5 | 46.7 | 70 | 27 | 7.5 |
| 35.9 | 60 | 23 | 5.5 | 38.5 | 60 | 23 | 6.0 | 43.6 | 70 | 27 | 10.0 | 30.4 | 70 | 32 | 4.0 |
| 43.5 | 70 | 28 | 5.5 | 42.4 | 60 | 24 | 9.0 | 41.0 | 80 | 32 | 6.5 | 43.2 | 60 | 25 | 5.5 |
| 47.9 | 80 | 34 | 6.5 | 46.5 | 70 | 31 | 5.5 | 50.2 | 50 | 26 | 9.0 | 30.6 | 60 | 26 | 3.5 |
| 33.8 | 70 | 26 | 4.5 | 43.1 | 80 | 32 | 6.0 | 34.4 | 50 | 22 | 4.0 | 43.3 | 70 | 28 | 7.5 |
| 41.1 | 70 | 26 | 8.0 | 50.8 | 60 | 26 | 10.0 | 47.9 | 80 | 34 | 6.5 | 32.4 | 60 | 22 | 5.5 |
| 38.7 | 70 | 26 | 8.0 | 44.2 | 70 | 28 | 4.5 | 46.2 | 50 | 21 | 10.0 | 35.5 | 60 | 22 | 4.5 |
Calculation:
The MINITAB output is shown below.
Figure-2
From Figure-2 it is clear that the confidence interval is
d.
To determine
To find: The prediction interval.
d.
Expert Solution
Answer to Problem 21E
The prediction intervalis
Explanation of Solution
Given information: The data is shown below.
| 31.3 | 50 | 19 | 4.0 | 37.4 | 60 | 30 | 5.0 | 24.0 | 60 | 24 | 4.0 | 51.0 | 80 | 34 | 7.5 |
| 56.9 | 90 | 38 | 8.0 | 43.3 | 60 | 26 | 7.0 | 36.2 | 50 | 21 | 7.0 | 34.3 | 60 | 22 | 2.5 |
| 43.1 | 70 | 28 | 6.5 | 36.3 | 70 | 25 | 7.5 | 26.5 | 50 | 17 | 2.0 | 31.5 | 60 | 24 | 5.0 |
| 41.5 | 70 | 25 | 5.5 | 38.4 | 70 | 31 | 5.5 | 47.1 | 80 | 34 | 8.5 | 33.2 | 60 | 23 | 4.0 |
| 39.0 | 60 | 26 | 6.5 | 41.5 | 60 | 27 | 7.5 | 38.1 | 70 | 27 | 5.5 | 39.2 | 60 | 29 | 6.5 |
| 40.9 | 70 | 29 | 5.0 | 36.l | 60 | 23 | 6.0 | 33.5 | 60 | 24 | 2.5 | 46.7 | 70 | 27 | 7.5 |
| 35.9 | 60 | 23 | 5.5 | 38.5 | 60 | 23 | 6.0 | 43.6 | 70 | 27 | 10.0 | 30.4 | 70 | 32 | 4.0 |
| 43.5 | 70 | 28 | 5.5 | 42.4 | 60 | 24 | 9.0 | 41.0 | 80 | 32 | 6.5 | 43.2 | 60 | 25 | 5.5 |
| 47.9 | 80 | 34 | 6.5 | 46.5 | 70 | 31 | 5.5 | 50.2 | 50 | 26 | 9.0 | 30.6 | 60 | 26 | 3.5 |
| 33.8 | 70 | 26 | 4.5 | 43.1 | 80 | 32 | 6.0 | 34.4 | 50 | 22 | 4.0 | 43.3 | 70 | 28 | 7.5 |
| 41.1 | 70 | 26 | 8.0 | 50.8 | 60 | 26 | 10.0 | 47.9 | 80 | 34 | 6.5 | 32.4 | 60 | 22 | 5.5 |
| 38.7 | 70 | 26 | 8.0 | 44.2 | 70 | 28 | 4.5 | 46.2 | 50 | 21 | 10.0 | 35.5 | 60 | 22 | 4.5 |
Calculation:
From Figure-12 it is clear that the
e.
To determine
To find: The percentage of variation in variable
e.
Expert Solution
Answer to Problem 21E
The percentage of variation in variable
Explanation of Solution
Given information: The data is shown below.
| 31.3 | 50 | 19 | 4.0 | 37.4 | 60 | 30 | 5.0 | 24.0 | 60 | 24 | 4.0 | 51.0 | 80 | 34 | 7.5 |
| 56.9 | 90 | 38 | 8.0 | 43.3 | 60 | 26 | 7.0 | 36.2 | 50 | 21 | 7.0 | 34.3 | 60 | 22 | 2.5 |
| 43.1 | 70 | 28 | 6.5 | 36.3 | 70 | 25 | 7.5 | 26.5 | 50 | 17 | 2.0 | 31.5 | 60 | 24 | 5.0 |
| 41.5 | 70 | 25 | 5.5 | 38.4 | 70 | 31 | 5.5 | 47.1 | 80 | 34 | 8.5 | 33.2 | 60 | 23 | 4.0 |
| 39.0 | 60 | 26 | 6.5 | 41.5 | 60 | 27 | 7.5 | 38.1 | 70 | 27 | 5.5 | 39.2 | 60 | 29 | 6.5 |
| 40.9 | 70 | 29 | 5.0 | 36.l | 60 | 23 | 6.0 | 33.5 | 60 | 24 | 2.5 | 46.7 | 70 | 27 | 7.5 |
| 35.9 | 60 | 23 | 5.5 | 38.5 | 60 | 23 | 6.0 | 43.6 | 70 | 27 | 10.0 | 30.4 | 70 | 32 | 4.0 |
| 43.5 | 70 | 28 | 5.5 | 42.4 | 60 | 24 | 9.0 | 41.0 | 80 | 32 | 6.5 | 43.2 | 60 | 25 | 5.5 |
| 47.9 | 80 | 34 | 6.5 | 46.5 | 70 | 31 | 5.5 | 50.2 | 50 | 26 | 9.0 | 30.6 | 60 | 26 | 3.5 |
| 33.8 | 70 | 26 | 4.5 | 43.1 | 80 | 32 | 6.0 | 34.4 | 50 | 22 | 4.0 | 43.3 | 70 | 28 | 7.5 |
| 41.1 | 70 | 26 | 8.0 | 50.8 | 60 | 26 | 10.0 | 47.9 | 80 | 34 | 6.5 | 32.4 | 60 | 22 | 5.5 |
| 38.7 | 70 | 26 | 8.0 | 44.2 | 70 | 28 | 4.5 | 46.2 | 50 | 21 | 10.0 | 35.5 | 60 | 22 | 4.5 |
Calculation:
From Figure-1 it is clear that the percentage of variation in variable
f.
To determine
To find:Whether the given model is useful for prediction.
f.
Expert Solution
Answer to Problem 21E
The model is useful in prediction.
Explanation of Solution
Given information: The data is shown below.
| 31.3 | 50 | 19 | 4.0 | 37.4 | 60 | 30 | 5.0 | 24.0 | 60 | 24 | 4.0 | 51.0 | 80 | 34 | 7.5 |
| 56.9 | 90 | 38 | 8.0 | 43.3 | 60 | 26 | 7.0 | 36.2 | 50 | 21 | 7.0 | 34.3 | 60 | 22 | 2.5 |
| 43.1 | 70 | 28 | 6.5 | 36.3 | 70 | 25 | 7.5 | 26.5 | 50 | 17 | 2.0 | 31.5 | 60 | 24 | 5.0 |
| 41.5 | 70 | 25 | 5.5 | 38.4 | 70 | 31 | 5.5 | 47.1 | 80 | 34 | 8.5 | 33.2 | 60 | 23 | 4.0 |
| 39.0 | 60 | 26 | 6.5 | 41.5 | 60 | 27 | 7.5 | 38.1 | 70 | 27 | 5.5 | 39.2 | 60 | 29 | 6.5 |
| 40.9 | 70 | 29 | 5.0 | 36.l | 60 | 23 | 6.0 | 33.5 | 60 | 24 | 2.5 | 46.7 | 70 | 27 | 7.5 |
| 35.9 | 60 | 23 | 5.5 | 38.5 | 60 | 23 | 6.0 | 43.6 | 70 | 27 | 10.0 | 30.4 | 70 | 32 | 4.0 |
| 43.5 | 70 | 28 | 5.5 | 42.4 | 60 | 24 | 9.0 | 41.0 | 80 | 32 | 6.5 | 43.2 | 60 | 25 | 5.5 |
| 47.9 | 80 | 34 | 6.5 | 46.5 | 70 | 31 | 5.5 | 50.2 | 50 | 26 | 9.0 | 30.6 | 60 | 26 | 3.5 |
| 33.8 | 70 | 26 | 4.5 | 43.1 | 80 | 32 | 6.0 | 34.4 | 50 | 22 | 4.0 | 43.3 | 70 | 28 | 7.5 |
| 41.1 | 70 | 26 | 8.0 | 50.8 | 60 | 26 | 10.0 | 47.9 | 80 | 34 | 6.5 | 32.4 | 60 | 22 | 5.5 |
| 38.7 | 70 | 26 | 8.0 | 44.2 | 70 | 28 | 4.5 | 46.2 | 50 | 21 | 10.0 | 35.5 | 60 | 22 | 4.5 |
Calculation:
The null hypothesis is, the model is not useful for prediction and the alternative hypothesis is, the model is useful in prediction.
From Figure-1 it is clear that the p value is less than the level of significance of
Hence, the null hypothesis is rejected.
Thus, the model is useful in prediction.
g.
To determine
To explain:The test for the hypothesis
g.
Expert Solution
Explanation of Solution
Given information: The data is shown below.
| 31.3 | 50 | 19 | 4.0 | 37.4 | 60 | 30 | 5.0 | 24.0 | 60 | 24 | 4.0 | 51.0 | 80 | 34 | 7.5 |
| 56.9 | 90 | 38 | 8.0 | 43.3 | 60 | 26 | 7.0 | 36.2 | 50 | 21 | 7.0 | 34.3 | 60 | 22 | 2.5 |
| 43.1 | 70 | 28 | 6.5 | 36.3 | 70 | 25 | 7.5 | 26.5 | 50 | 17 | 2.0 | 31.5 | 60 | 24 | 5.0 |
| 41.5 | 70 | 25 | 5.5 | 38.4 | 70 | 31 | 5.5 | 47.1 | 80 | 34 | 8.5 | 33.2 | 60 | 23 | 4.0 |
| 39.0 | 60 | 26 | 6.5 | 41.5 | 60 | 27 | 7.5 | 38.1 | 70 | 27 | 5.5 | 39.2 | 60 | 29 | 6.5 |
| 40.9 | 70 | 29 | 5.0 | 36.l | 60 | 23 | 6.0 | 33.5 | 60 | 24 | 2.5 | 46.7 | 70 | 27 | 7.5 |
| 35.9 | 60 | 23 | 5.5 | 38.5 | 60 | 23 | 6.0 | 43.6 | 70 | 27 | 10.0 | 30.4 | 70 | 32 | 4.0 |
| 43.5 | 70 | 28 | 5.5 | 42.4 | 60 | 24 | 9.0 | 41.0 | 80 | 32 | 6.5 | 43.2 | 60 | 25 | 5.5 |
| 47.9 | 80 | 34 | 6.5 | 46.5 | 70 | 31 | 5.5 | 50.2 | 50 | 26 | 9.0 | 30.6 | 60 | 26 | 3.5 |
| 33.8 | 70 | 26 | 4.5 | 43.1 | 80 | 32 | 6.0 | 34.4 | 50 | 22 | 4.0 | 43.3 | 70 | 28 | 7.5 |
| 41.1 | 70 | 26 | 8.0 | 50.8 | 60 | 26 | 10.0 | 47.9 | 80 | 34 | 6.5 | 32.4 | 60 | 22 | 5.5 |
| 38.7 | 70 | 26 | 8.0 | 44.2 | 70 | 28 | 4.5 | 46.2 | 50 | 21 | 10.0 | 35.5 | 60 | 22 | 4.5 |
The null hypothesis is, there is no relationship between
For the variable
From Figure-1 it is clear that the p value is
Hence, the null hypothesis is not rejected.
Thus, there is no linear relationship between
For the variable
From Figure-1 it is clear that the p value is
Hence, the null hypothesis is rejected.
Thus, there is alinear relationship between
For the variable
From Figure-1 it is clear that the p value is
Hence, the null hypothesis is rejected.
Thus, there is a linear relationship between
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Chapter 13 Solutions
ELEMENTARY STATISTICS W/CONNECT >C<
Ch. 13.1 - Prob. 7ECh. 13.1 - Prob. 8ECh. 13.1 - In Exercises 9 and 10, determine whether the...Ch. 13.1 - Prob. 10ECh. 13.1 - Prob. 11ECh. 13.1 - Prob. 12ECh. 13.1 - Prob. 13ECh. 13.1 - Prob. 14ECh. 13.1 - Prob. 15ECh. 13.1 - Prob. 16E
Ch. 13.1 - Prob. 17ECh. 13.1 - Prob. 18ECh. 13.1 - Prob. 19ECh. 13.1 - Prob. 20ECh. 13.1 - Prob. 21ECh. 13.1 - Prob. 22ECh. 13.1 - Prob. 23ECh. 13.1 - Prob. 24ECh. 13.1 - Prob. 25ECh. 13.1 - Prob. 26ECh. 13.1 - Prob. 27ECh. 13.1 - Prob. 28ECh. 13.1 - Prob. 26aECh. 13.1 - Calculator display: The following TI-84 Plus...Ch. 13.1 - Prob. 28aECh. 13.1 - Prob. 29ECh. 13.1 - Prob. 30ECh. 13.1 - Confidence interval for the conditional mean: In...Ch. 13.2 - Prob. 3ECh. 13.2 - Prob. 4ECh. 13.2 - Prob. 5ECh. 13.2 - Prob. 6ECh. 13.2 - Prob. 7ECh. 13.2 - Prob. 8ECh. 13.2 - Prob. 9ECh. 13.2 - Prob. 10ECh. 13.2 - Prob. 11ECh. 13.2 - Prob. 12ECh. 13.2 - Prob. 13ECh. 13.2 - Prob. 14ECh. 13.2 - Prob. 15ECh. 13.2 - Prob. 16ECh. 13.2 - Prob. 17ECh. 13.2 - Dry up: Use the data in Exercise 26 in Section...Ch. 13.2 - Prob. 19ECh. 13.2 - Prob. 20ECh. 13.2 - Prob. 21ECh. 13.3 - Prob. 7ECh. 13.3 - Prob. 8ECh. 13.3 - Prob. 9ECh. 13.3 - In Exercises 9 and 10, determine whether the...Ch. 13.3 - Prob. 11ECh. 13.3 - Prob. 12ECh. 13.3 - Prob. 13ECh. 13.3 - For the following data set: Construct the multiple...Ch. 13.3 - Engine emissions: In a laboratory test of a new...Ch. 13.3 - Prob. 16ECh. 13.3 - Prob. 17ECh. 13.3 - Prob. 18ECh. 13.3 - Prob. 19ECh. 13.3 - Prob. 20ECh. 13.3 - Prob. 21ECh. 13.3 - Prob. 22ECh. 13.3 - Prob. 23ECh. 13 - A confidence interval for 1 is to be constructed...Ch. 13 - A confidence interval for a mean response and a...Ch. 13 - Prob. 3CQCh. 13 - Prob. 4CQCh. 13 - Prob. 5CQCh. 13 - Prob. 6CQCh. 13 - Construct a 95% confidence interval for 1.Ch. 13 - Prob. 8CQCh. 13 - Prob. 9CQCh. 13 - Prob. 10CQCh. 13 - Prob. 11CQCh. 13 - Prob. 12CQCh. 13 - Prob. 13CQCh. 13 - Prob. 14CQCh. 13 - Prob. 15CQCh. 13 - Prob. 1RECh. 13 - Prob. 2RECh. 13 - Prob. 3RECh. 13 - Prob. 4RECh. 13 - Prob. 5RECh. 13 - Prob. 6RECh. 13 - Prob. 7RECh. 13 - Prob. 8RECh. 13 - Prob. 9RECh. 13 - Prob. 10RECh. 13 - Air pollution: Following are measurements of...Ch. 13 - Icy lakes: Following are data on maximum ice...Ch. 13 - Prob. 13RECh. 13 - Prob. 14RECh. 13 - Prob. 15RECh. 13 - Prob. 1WAICh. 13 - Prob. 2WAICh. 13 - Prob. 1CSCh. 13 - Prob. 2CSCh. 13 - Prob. 3CSCh. 13 - Prob. 4CSCh. 13 - Prob. 5CSCh. 13 - Prob. 6CSCh. 13 - Prob. 7CS
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- Problem 4. Margrabe formula and the Greeks (20 pts) In the homework, we determined the Margrabe formula for the price of an option allowing you to swap an x-stock for a y-stock at time T. For stocks with initial values xo, yo, common volatility σ and correlation p, the formula was given by Fo=yo (d+)-x0Þ(d_), where In (±² Ꭲ d+ õ√T and σ = σ√√√2(1 - p). дго (a) We want to determine a "Greek" for ỡ on the option: find a formula for θα (b) Is дго θα positive or negative? (c) We consider a situation in which the correlation p between the two stocks increases: what can you say about the price Fo? (d) Assume that yo< xo and p = 1. What is the price of the option?arrow_forwardWe consider a 4-dimensional stock price model given (under P) by dẴ₁ = µ· Xt dt + йt · ΣdŴt where (W) is an n-dimensional Brownian motion, π = (0.02, 0.01, -0.02, 0.05), 0.2 0 0 0 0.3 0.4 0 0 Σ= -0.1 -4a За 0 0.2 0.4 -0.1 0.2) and a E R. We assume that ☑0 = (1, 1, 1, 1) and that the interest rate on the market is r = 0.02. (a) Give a condition on a that would make stock #3 be the one with largest volatility. (b) Find the diversification coefficient for this portfolio as a function of a. (c) Determine the maximum diversification coefficient d that you could reach by varying the value of a? 2arrow_forwardQuestion 1. Your manager asks you to explain why the Black-Scholes model may be inappro- priate for pricing options in practice. Give one reason that would substantiate this claim? Question 2. We consider stock #1 and stock #2 in the model of Problem 2. Your manager asks you to pick only one of them to invest in based on the model provided. Which one do you choose and why ? Question 3. Let (St) to be an asset modeled by the Black-Scholes SDE. Let Ft be the price at time t of a European put with maturity T and strike price K. Then, the discounted option price process (ert Ft) t20 is a martingale. True or False? (Explain your answer.) Question 4. You are considering pricing an American put option using a Black-Scholes model for the underlying stock. An explicit formula for the price doesn't exist. In just a few words (no more than 2 sentences), explain how you would proceed to price it. Question 5. We model a short rate with a Ho-Lee model drt = ln(1+t) dt +2dWt. Then the interest rate…arrow_forward
- In this problem, we consider a Brownian motion (W+) t≥0. We consider a stock model (St)t>0 given (under the measure P) by d.St 0.03 St dt + 0.2 St dwt, with So 2. We assume that the interest rate is r = 0.06. The purpose of this problem is to price an option on this stock (which we name cubic put). This option is European-type, with maturity 3 months (i.e. T = 0.25 years), and payoff given by F = (8-5)+ (a) Write the Stochastic Differential Equation satisfied by (St) under the risk-neutral measure Q. (You don't need to prove it, simply give the answer.) (b) Give the price of a regular European put on (St) with maturity 3 months and strike K = 2. (c) Let X = S. Find the Stochastic Differential Equation satisfied by the process (Xt) under the measure Q. (d) Find an explicit expression for X₁ = S3 under measure Q. (e) Using the results above, find the price of the cubic put option mentioned above. (f) Is the price in (e) the same as in question (b)? (Explain why.)arrow_forwardThe managing director of a consulting group has the accompanying monthly data on total overhead costs and professional labor hours to bill to clients. Complete parts a through c. Question content area bottom Part 1 a. Develop a simple linear regression model between billable hours and overhead costs. Overhead Costsequals=212495.2212495.2plus+left parenthesis 42.4857 right parenthesis42.485742.4857times×Billable Hours (Round the constant to one decimal place as needed. Round the coefficient to four decimal places as needed. Do not include the $ symbol in your answers.) Part 2 b. Interpret the coefficients of your regression model. Specifically, what does the fixed component of the model mean to the consulting firm? Interpret the fixed term, b 0b0, if appropriate. Choose the correct answer below. A. The value of b 0b0 is the predicted billable hours for an overhead cost of 0 dollars. B. It is not appropriate to interpret b 0b0, because its value…arrow_forwardUsing the accompanying Home Market Value data and associated regression line, Market ValueMarket Valueequals=$28,416+$37.066×Square Feet, compute the errors associated with each observation using the formula e Subscript ieiequals=Upper Y Subscript iYiminus−ModifyingAbove Upper Y with caret Subscript iYi and construct a frequency distribution and histogram. LOADING... Click the icon to view the Home Market Value data. Question content area bottom Part 1 Construct a frequency distribution of the errors, e Subscript iei. (Type whole numbers.) Error Frequency minus−15 comma 00015,000less than< e Subscript iei less than or equals≤minus−10 comma 00010,000 0 minus−10 comma 00010,000less than< e Subscript iei less than or equals≤minus−50005000 5 minus−50005000less than< e Subscript iei less than or equals≤0 21 0less than< e Subscript iei less than or equals≤50005000 9…arrow_forward
- The managing director of a consulting group has the accompanying monthly data on total overhead costs and professional labor hours to bill to clients. Complete parts a through c Overhead Costs Billable Hours345000 3000385000 4000410000 5000462000 6000530000 7000545000 8000arrow_forwardUsing the accompanying Home Market Value data and associated regression line, Market ValueMarket Valueequals=$28,416plus+$37.066×Square Feet, compute the errors associated with each observation using the formula e Subscript ieiequals=Upper Y Subscript iYiminus−ModifyingAbove Upper Y with caret Subscript iYi and construct a frequency distribution and histogram. Square Feet Market Value1813 911001916 1043001842 934001814 909001836 1020002030 1085001731 877001852 960001793 893001665 884001852 1009001619 967001690 876002370 1139002373 1131001666 875002122 1161001619 946001729 863001667 871001522 833001484 798001589 814001600 871001484 825001483 787001522 877001703 942001485 820001468 881001519 882001518 885001483 765001522 844001668 909001587 810001782 912001483 812001519 1007001522 872001684 966001581 86200arrow_forwarda. Find the value of A.b. Find pX(x) and py(y).c. Find pX|y(x|y) and py|X(y|x)d. Are x and y independent? Why or why not?arrow_forward
- The PDF of an amplitude X of a Gaussian signal x(t) is given by:arrow_forwardThe PDF of a random variable X is given by the equation in the picture.arrow_forwardFor a binary asymmetric channel with Py|X(0|1) = 0.1 and Py|X(1|0) = 0.2; PX(0) = 0.4 isthe probability of a bit of “0” being transmitted. X is the transmitted digit, and Y is the received digit.a. Find the values of Py(0) and Py(1).b. What is the probability that only 0s will be received for a sequence of 10 digits transmitted?c. What is the probability that 8 1s and 2 0s will be received for the same sequence of 10 digits?d. What is the probability that at least 5 0s will be received for the same sequence of 10 digits?arrow_forward
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