Prove that the expected payoff for the act of purchasing Rim Homes stock is $1,760.

Question

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Answer 1

Question

Chapter 20, Problem 1SR

To determine

Prove that the expected payoff for the act of purchasing Rim Homes stock is $1,760.

Expert Solution & Answer

Answer to Problem 1SR

The expected payoff for the act of purchasing Rim Homes stock is $1,760.

Explanation of Solution

From the Table 20-1, the bull market and bear stock for the Rim homes are 2,200 and 1,100, respectively. The corresponding probabilities are 0.60 and 0.40.

The expected payoff for the act of purchasing Rim Homes stock is calculated as follows:

Event	Payoff value	Probability	Expected value
Bull market	2,200	0.60	2,200×0.60=1,320
Bear market	1,100	0.40	1,100×0.40=440
			Total=1,320+440=1,760

Then, the expected payoff for the act of purchasing Rim Homes stock is obtained by adding the expected values 1,320 and 440. That is, 1,320+440=1,760.

Thus, the expected payoff for the act of purchasing Rim Homes stock is $1,760.

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Answer 2

Question

Chapter 20, Problem 1SR

To determine

Prove that the expected payoff for the act of purchasing Rim Homes stock is $1,760.

Expert Solution & Answer

Answer to Problem 1SR

The expected payoff for the act of purchasing Rim Homes stock is $1,760.

Explanation of Solution

From the Table 20-1, the bull market and bear stock for the Rim homes are 2,200 and 1,100, respectively. The corresponding probabilities are 0.60 and 0.40.

The expected payoff for the act of purchasing Rim Homes stock is calculated as follows:

Event	Payoff value	Probability	Expected value
Bull market	2,200	0.60	2,200×0.60=1,320
Bear market	1,100	0.40	1,100×0.40=440
			Total=1,320+440=1,760

Then, the expected payoff for the act of purchasing Rim Homes stock is obtained by adding the expected values 1,320 and 440. That is, 1,320+440=1,760.

Thus, the expected payoff for the act of purchasing Rim Homes stock is $1,760.

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Answer 3

Question

Chapter 20, Problem 1SR

To determine

Prove that the expected payoff for the act of purchasing Rim Homes stock is $1,760.

Expert Solution & Answer

Answer to Problem 1SR

The expected payoff for the act of purchasing Rim Homes stock is $1,760.

Explanation of Solution

From the Table 20-1, the bull market and bear stock for the Rim homes are 2,200 and 1,100, respectively. The corresponding probabilities are 0.60 and 0.40.

The expected payoff for the act of purchasing Rim Homes stock is calculated as follows:

Event	Payoff value	Probability	Expected value
Bull market	2,200	0.60	2,200×0.60=1,320
Bear market	1,100	0.40	1,100×0.40=440
			Total=1,320+440=1,760

Then, the expected payoff for the act of purchasing Rim Homes stock is obtained by adding the expected values 1,320 and 440. That is, 1,320+440=1,760.

Thus, the expected payoff for the act of purchasing Rim Homes stock is $1,760.

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Answer 4

Question

Chapter 20, Problem 1SR

To determine

Prove that the expected payoff for the act of purchasing Rim Homes stock is $1,760.

Expert Solution & Answer

Answer to Problem 1SR

The expected payoff for the act of purchasing Rim Homes stock is $1,760.

Explanation of Solution

From the Table 20-1, the bull market and bear stock for the Rim homes are 2,200 and 1,100, respectively. The corresponding probabilities are 0.60 and 0.40.

The expected payoff for the act of purchasing Rim Homes stock is calculated as follows:

Event	Payoff value	Probability	Expected value
Bull market	2,200	0.60	2,200×0.60=1,320
Bear market	1,100	0.40	1,100×0.40=440
			Total=1,320+440=1,760

Then, the expected payoff for the act of purchasing Rim Homes stock is obtained by adding the expected values 1,320 and 440. That is, 1,320+440=1,760.

Thus, the expected payoff for the act of purchasing Rim Homes stock is $1,760.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 20, Problem 1SR

To determine

Prove that the expected payoff for the act of purchasing Rim Homes stock is $1,760.

Expert Solution & Answer

Answer to Problem 1SR

The expected payoff for the act of purchasing Rim Homes stock is $1,760.

Explanation of Solution

From the Table 20-1, the bull market and bear stock for the Rim homes are 2,200 and 1,100, respectively. The corresponding probabilities are 0.60 and 0.40.

The expected payoff for the act of purchasing Rim Homes stock is calculated as follows:

Event	Payoff value	Probability	Expected value
Bull market	2,200	0.60	2,200×0.60=1,320
Bear market	1,100	0.40	1,100×0.40=440
			Total=1,320+440=1,760

Then, the expected payoff for the act of purchasing Rim Homes stock is obtained by adding the expected values 1,320 and 440. That is, 1,320+440=1,760.

Thus, the expected payoff for the act of purchasing Rim Homes stock is $1,760.

Answer 6

Chapter 20, Problem 1SR

To determine

Prove that the expected payoff for the act of purchasing Rim Homes stock is $1,760.

Expert Solution & Answer

Answer to Problem 1SR

The expected payoff for the act of purchasing Rim Homes stock is $1,760.

Explanation of Solution

From the Table 20-1, the bull market and bear stock for the Rim homes are 2,200 and 1,100, respectively. The corresponding probabilities are 0.60 and 0.40.

The expected payoff for the act of purchasing Rim Homes stock is calculated as follows:

Event	Payoff value	Probability	Expected value
Bull market	2,200	0.60	2,200×0.60=1,320
Bear market	1,100	0.40	1,100×0.40=440
			Total=1,320+440=1,760

Then, the expected payoff for the act of purchasing Rim Homes stock is obtained by adding the expected values 1,320 and 440. That is, 1,320+440=1,760.

Thus, the expected payoff for the act of purchasing Rim Homes stock is $1,760.

Answer 7

Chapter 20, Problem 1SR

To determine

Prove that the expected payoff for the act of purchasing Rim Homes stock is $1,760.

Answer 8

Expert Solution & Answer

Answer to Problem 1SR

The expected payoff for the act of purchasing Rim Homes stock is $1,760.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

From the Table 20-1, the bull market and bear stock for the Rim homes are 2,200 and 1,100, respectively. The corresponding probabilities are 0.60 and 0.40.

The expected payoff for the act of purchasing Rim Homes stock is calculated as follows:

Event	Payoff value	Probability	Expected value
Bull market	2,200	0.60	2,200×0.60=1,320
Bear market	1,100	0.40	1,100×0.40=440
			Total=1,320+440=1,760

Then, the expected payoff for the act of purchasing Rim Homes stock is obtained by adding the expected values 1,320 and 440. That is, 1,320+440=1,760.

Thus, the expected payoff for the act of purchasing Rim Homes stock is $1,760.

Answer 12

Ch. 20 - Prob. 1SR Ch. 20 - Prob. 1E Ch. 20 - Prob. 2E Ch. 20 - Prob. 2SR Ch. 20 - Prob. 3E Ch. 20 - Prob. 4E Ch. 20 - Prob. 3SR Ch. 20 - Prob. 5E Ch. 20 - Prob. 6E Ch. 20 - Prob. 4SR

Prove that the expected payoff for the act of purchasing Rim Homes stock is $1,760.

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Prove that the expected payoff for the act of purchasing Rim Homes stock is $1,760.

Answer to Problem 1SR

Explanation of Solution

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Chapter 20 Solutions