The finance charge and annual percentage rate if amount financed is $ 13 , 000 , number of payments is 48 and monthly payment is $ 373.75 .

Question

10. In the general single period market model with = {W1, W2, W3}, one risky asset, S, and a money market account, we have So = 4 for the risky asset. Moreover, the effective rate of interest on the money market account is 5% and at time t = 1 we have W1 W2 W3 S₁ 100 50 40 21 21 21 (a) Calculate all risk-neutral probability measures for this model. [4 Marks] (b) State if the model is arbitrage-free. Give a brief reason for your answer. [2 Marks] (c) A large bank has designed an investment product with payoff X at time t = 1. Given W₁ W2 W3 X 0 1 1.5 show that X is an attainable contingent claim. [4 marks]

Answer 1

Question

Chapter 13.II, Problem 23RE

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To calculate: The finance charge and annual percentage rate if amount financed is $13,000, number of payments is 48 and monthly payment is $373.75.

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