Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Question
Chapter 4A, Problem 1E
a)
To determine
To find: The possibility of the cause of autocorrelation.
a)
Expert Solution
Explanation of Solution
The causes of autocorrelation are:
1. Bias in the data
2. The data is not reliable there must be some change in the data.
b)
To determine
To find: The effect of autocorrelation.
b)
Expert Solution
Explanation of Solution
The results are:
1. two or more independent variables are correlated, i.e., multicollinearity.
2. the function might be sometimes non-linear.
c)
To determine
To find: the affect of autocorrelation on the accuracy of
c)
Expert Solution
Explanation of Solution
- autocorrelation might underestimate the true variance.
- The null hypothesis might be rejected although it is true.
d)
To determine
To find: remedial for autocorrelation removal
d)
Expert Solution
Explanation of Solution
The remedy is to increase the number of observations, find the missing values and estimators although linear is not the efficient estimator.
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Students have asked these similar questions
Consider a call option on a stock that does not pay dividends.
The stock price is $100 per share, and the risk-free interest rate is 10%.
The call strike is $100 (at the money).
The stock moves randomly with u=2 and d=0.5.
1. Write the system of equations to replicate the option using A shares and B bonds.
2. Solve the system of equations and determine the number of shares and the number of bonds
needed to replicate the option. Show your answer with 4 decimal places (x.xxxx); do not
round intermediate calculations. This is easy to do in Excel.
A =
B =
3. Use A shares and B bonds from the prior question to calculate the premium on the option.
Again, do not round intermediate calculations and show your answer with 4 decimal places.
Call premium =
Answer these questions using replication or the risk neutral probability. Both methods will
produce the same answer.
Show your work to receive credit.
6. What is the premium of a call with a higher strike.
Show your work to receive credit; do not round intermediate calculations.
S0 = $100, u=2, d=0.5, r=10%, strike=$150
Answer these questions using replication or the risk neutral probability. Both methods will produce the same answer.
Chapter 4A Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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