EBK STATISTICS FOR THE BEHAVIORAL SCIEN
3rd Edition
ISBN: 9781506386249
Author: PRIVITERA
Publisher: VST
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Chapter 16, Problem 17CAP
To determine
Find the regression line that fits best for the given data.
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solving problem 1
select bmw stock. you can assume the price of the stock
This problem is based on the fundamental option pricing formula for the continuous-time
model developed in class, namely the value at time 0 of an option with maturity T and
payoff F is given by:
We consider the two options below:
Fo=
-rT
= e
Eq[F].
1
A. An option with which you must buy a share of stock at expiration T = 1 for strike
price K = So.
B. An option with which you must buy a share of stock at expiration T = 1 for strike
price K given by
T
K =
T
St dt.
(Note that both options can have negative payoffs.) We use the continuous-time Black-
Scholes model to price these options. Assume that the interest rate on the money market
is r.
(a) Using the fundamental option pricing formula, find the price of option A. (Hint:
use the martingale properties developed in the lectures for the stock price process
in order to calculate the expectations.)
(b) Using the fundamental option pricing formula, find the price of option B.
(c) Assuming the interest rate is very small (r ~0), use Taylor…
Chapter 16 Solutions
EBK STATISTICS FOR THE BEHAVIORAL SCIEN
Ch. 16.2 - Prob. 1.1LCCh. 16.2 - Prob. 1.2LCCh. 16.2 - Prob. 1.3LCCh. 16.4 - Prob. 2.1LCCh. 16.4 - Prob. 2.2LCCh. 16.4 - Prob. 2.3LCCh. 16.5 - Prob. 3.1LCCh. 16.5 - Prob. 3.2LCCh. 16.6 - Prob. 4.1LCCh. 16.6 - Prob. 4.2LC
Ch. 16.6 - Prob. 4.3LCCh. 16.8 - Prob. 5.1LCCh. 16.8 - Prob. 5.2LCCh. 16.8 - Prob. 5.3LCCh. 16.9 - Prob. 6.1LCCh. 16.9 - Prob. 6.2LCCh. 16.9 - Prob. 6.3LCCh. 16.13 - Prob. 7.1LCCh. 16.13 - Prob. 7.2LCCh. 16.13 - Prob. 7.3LCCh. 16 - Prob. 1FPCh. 16 - Prob. 2FPCh. 16 - Prob. 3FPCh. 16 - Prob. 4FPCh. 16 - Prob. 5FPCh. 16 - Prob. 6FPCh. 16 - Prob. 7FPCh. 16 - Prob. 8FPCh. 16 - Prob. 9FPCh. 16 - Prob. 10FPCh. 16 - Prob. 11FPCh. 16 - Prob. 12FPCh. 16 - Prob. 13CAPCh. 16 - Prob. 14CAPCh. 16 - Prob. 15CAPCh. 16 - Prob. 16CAPCh. 16 - Prob. 17CAPCh. 16 - Prob. 18CAPCh. 16 - Prob. 19CAPCh. 16 - Prob. 20CAPCh. 16 - Prob. 21CAPCh. 16 - Prob. 22CAPCh. 16 - Prob. 23CAPCh. 16 - Prob. 24CAPCh. 16 - Prob. 25CAPCh. 16 - Prob. 26CAPCh. 16 - Prob. 27CAPCh. 16 - Prob. 28CAPCh. 16 - Prob. 29CAPCh. 16 - Prob. 30PRCh. 16 - Prob. 31PRCh. 16 - Prob. 32PRCh. 16 - Prob. 33PRCh. 16 - Prob. 34PR
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- Suppose the Internal Revenue Service reported that the mean tax refund for the year 2022 was $3401. Assume the standard deviation is $82.5 and that the amounts refunded follow a normal probability distribution. Solve the following three parts? (For the answer to question 14, 15, and 16, start with making a bell curve. Identify on the bell curve where is mean, X, and area(s) to be determined. 1.What percent of the refunds are more than $3,500? 2. What percent of the refunds are more than $3500 but less than $3579? 3. What percent of the refunds are more than $3325 but less than $3579?arrow_forwardA normal distribution has a mean of 50 and a standard deviation of 4. Solve the following three parts? 1. Compute the probability of a value between 44.0 and 55.0. (The question requires finding probability value between 44 and 55. Solve it in 3 steps. In the first step, use the above formula and x = 44, calculate probability value. In the second step repeat the first step with the only difference that x=55. In the third step, subtract the answer of the first part from the answer of the second part.) 2. Compute the probability of a value greater than 55.0. Use the same formula, x=55 and subtract the answer from 1. 3. Compute the probability of a value between 52.0 and 55.0. (The question requires finding probability value between 52 and 55. Solve it in 3 steps. In the first step, use the above formula and x = 52, calculate probability value. In the second step repeat the first step with the only difference that x=55. In the third step, subtract the answer of the first part from the…arrow_forwardIf a uniform distribution is defined over the interval from 6 to 10, then answer the followings: What is the mean of this uniform distribution? Show that the probability of any value between 6 and 10 is equal to 1.0 Find the probability of a value more than 7. Find the probability of a value between 7 and 9. The closing price of Schnur Sporting Goods Inc. common stock is uniformly distributed between $20 and $30 per share. What is the probability that the stock price will be: More than $27? Less than or equal to $24? The April rainfall in Flagstaff, Arizona, follows a uniform distribution between 0.5 and 3.00 inches. What is the mean amount of rainfall for the month? What is the probability of less than an inch of rain for the month? What is the probability of exactly 1.00 inch of rain? What is the probability of more than 1.50 inches of rain for the month? The best way to solve this problem is begin by a step by step creating a chart. Clearly mark the range, identifying the…arrow_forward
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