Mathematical Applications for the Management, Life, and Social Sciences
12th Edition
ISBN: 9781337625340
Author: Ronald J. Harshbarger, James J. Reynolds
Publisher: Cengage Learning
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Chapter 5, Problem 10T
To determine
To calculate: The value of the expression
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Students have asked these similar questions
We consider an N-period CRR model where each period is 1 year (At = 1), the up factor is
u = 0.1, the down factor is d = e−0.3 and r = 0. We remind you that in the CRR model, the
stock price at time tn is modeled (under P) by
Sta
=
So exp (μtn + σ√AtZn),
where (Zn) is a simple symmetric random walk.
(a) Find the parameters μ and σ for the CRR model described above.
(b) Find P
Ste
So
55/50
€ > 1).
StN
(c) Find lim P
804-N
(d) Determine q. (You can use e- 1 x.)
Ste
(e) Find Q
So
(f) Find lim Q
004-N
StN
So
In this problem, we consider a 3-period stock market model with evolution given in Fig. 1 below.
Each period corresponds to one year. The interest rate is r = 0%.
16
22
28
12
16
12
8
4
2
time
Figure 1: Stock evolution for Problem 1.
(a) A colleague notices that in the model above, a movement up-down leads to the same value
as a movement down-up. He concludes that the model is a CRR model. Is your colleague
correct? (Explain your answer.)
(b) We consider a European put with strike price K = 10 and expiration T = 3 years. Find
the price of this option at time 0. Provide the replicating portfolio for the first period.
(c) In addition to the call above, we also consider a European call with strike price K = 10
and expiration T = 3 years. Which one has the highest price? (It is not necessary to
provide the price of the call.)
(d) We now assume a yearly interest rate r = 25%. We consider a Bermudan put option with
strike price K = 10. It works like a standard put, but you can exercise it…
In this problem, we consider a 2-period stock market model with evolution given in Fig. 1 below.
Each period corresponds to one year (At = 1). The yearly interest rate is r = 1/3 = 33%. This
model is a CRR model.
25
15
9
10
6
4
time
Figure 1: Stock evolution for Problem 1.
(a) Find the values of up and down factors u and d, and the risk-neutral probability q.
(b) We consider a European put with strike price K
the price of this option at time 0.
==
16 and expiration T = 2 years. Find
(c) Provide the number of shares of stock that the replicating portfolio contains at each pos-
sible position.
(d) You find this option available on the market for $2. What do you do? (Short answer.)
(e) We consider an American put with strike price K
= 16 and expiration T
=
2 years. Find
the price of this option at time 0 and describe the optimal exercising strategy.
(f) We consider an American call with strike price K ○ = 16 and expiration T = 2 years. Find
the price of this option at time 0 and describe…
Chapter 5 Solutions
Mathematical Applications for the Management, Life, and Social Sciences
Ch. 5.1 - 1. Can any value of x give a negative value for y...Ch. 5.1 - 2. If , what asymptote does the graph of ...Ch. 5.1 - Prob. 3CPCh. 5.1 - Prob. 4CPCh. 5.1 - Prob. 5CPCh. 5.1 - Prob. 6CPCh. 5.1 - Prob. 1ECh. 5.1 - In Problems 1-8, use a calculator to evaluate each...Ch. 5.1 - Prob. 3ECh. 5.1 - Prob. 4E
Ch. 5.1 - Prob. 5ECh. 5.1 - Prob. 6ECh. 5.1 - Prob. 7ECh. 5.1 - Prob. 8ECh. 5.1 - Prob. 9ECh. 5.1 - Prob. 10ECh. 5.1 - Prob. 11ECh. 5.1 - Prob. 12ECh. 5.1 - Prob. 13ECh. 5.1 - Prob. 14ECh. 5.1 - Prob. 15ECh. 5.1 - Prob. 16ECh. 5.1 - Prob. 17ECh. 5.1 - Prob. 18ECh. 5.1 - Prob. 19ECh. 5.1 - Prob. 20ECh. 5.1 - Prob. 21ECh. 5.1 - Prob. 22ECh. 5.1 - 23. (a) Graph .
(b) Graph .
(c) Algebraically show...Ch. 5.1 - Prob. 24ECh. 5.1 - 25. Given that , write an equivalent equation in...Ch. 5.1 - 26. Given that , write an equivalent equation in...Ch. 5.1 - Prob. 27ECh. 5.1 - Prob. 28ECh. 5.1 - Prob. 29ECh. 5.1 - Prob. 30ECh. 5.1 - Prob. 31ECh. 5.1 - Prob. 32ECh. 5.1 - 33. Compound interest If $1000 is invested for x...Ch. 5.1 - 34. Purchasing power and inflation The purchasing...Ch. 5.1 - 35. Compound interest We will show in the next...Ch. 5.1 - 36. Compound interest If $1000 is invested for x...Ch. 5.1 - 37. Drug in the bloodstream The percent...Ch. 5.1 - Bacterial growth A single bacterium splits into...Ch. 5.1 - 39. Product reliability A statistical study shows...Ch. 5.1 - Prob. 40ECh. 5.1 - Prob. 41ECh. 5.1 - Prob. 42ECh. 5.1 - Prob. 43ECh. 5.1 - Prob. 44ECh. 5.1 - 45. Real consumption One of the components of the...Ch. 5.1 - 46. Advertising and sales Suppose that sales are...Ch. 5.1 - 47. Modeling Carbon dioxide emissions The...Ch. 5.1 - Prob. 48ECh. 5.1 - 49. Modeling Personal income The table shows the...Ch. 5.1 - 50. Modeling Consumer price index The table below...Ch. 5.1 - Prob. 51ECh. 5.1 - Prob. 52ECh. 5.1 - 53. Modeling Alzheimer’s disease As the baby...Ch. 5.2 - 1. What asymptote does the graph of approach when...Ch. 5.2 - 2. For , does the equation represent the same...Ch. 5.2 - Prob. 3CPCh. 5.2 - Prob. 4CPCh. 5.2 - 5. Simplify:
(a) (b) (c) (d) log 1
Ch. 5.2 - Prob. 6CPCh. 5.2 - In Problems 1-4, use the definition of a...Ch. 5.2 - Prob. 2ECh. 5.2 - Prob. 3ECh. 5.2 - Prob. 4ECh. 5.2 - Prob. 5ECh. 5.2 - Prob. 6ECh. 5.2 - Prob. 7ECh. 5.2 - Prob. 8ECh. 5.2 - Prob. 9ECh. 5.2 - Prob. 10ECh. 5.2 - Prob. 11ECh. 5.2 - Prob. 12ECh. 5.2 - In Problems 5-14, solve for x by writing the...Ch. 5.2 - In Problems 5-14, solve for x by writing the...Ch. 5.2 - Prob. 15ECh. 5.2 - Prob. 16ECh. 5.2 - Prob. 17ECh. 5.2 - Prob. 18ECh. 5.2 - Prob. 19ECh. 5.2 - In Problems 19 and 20, write the equation in...Ch. 5.2 - Prob. 21ECh. 5.2 - Prob. 22ECh. 5.2 - Prob. 23ECh. 5.2 - Prob. 24ECh. 5.2 - Prob. 25ECh. 5.2 - Prob. 26ECh. 5.2 - Prob. 27ECh. 5.2 - Prob. 28ECh. 5.2 - Prob. 29ECh. 5.2 - Prob. 30ECh. 5.2 - Prob. 31ECh. 5.2 - In Problems 27 and 28, use properties of...Ch. 5.2 - Prob. 33ECh. 5.2 - Prob. 34ECh. 5.2 - In Problems 35 and 36, evaluate each logarithm...Ch. 5.2 - In Problems 35 and 36, evaluate each logarithm...Ch. 5.2 - Write each expression in Problems 37-40 as the sum...Ch. 5.2 - Prob. 38ECh. 5.2 - Prob. 39ECh. 5.2 - Write each expression in Problems 37-40 as the sum...Ch. 5.2 - Prob. 41ECh. 5.2 - Prob. 42ECh. 5.2 - Prob. 43ECh. 5.2 - Prob. 44ECh. 5.2 - Prob. 45ECh. 5.2 - Prob. 46ECh. 5.2 - Prob. 47ECh. 5.2 - In Problems 45-48, use a calculator to determine...Ch. 5.2 - Prob. 49ECh. 5.2 - Prob. 50ECh. 5.2 - Prob. 51ECh. 5.2 - Prob. 52ECh. 5.2 - Prob. 53ECh. 5.2 - Prob. 54ECh. 5.2 - Prob. 55ECh. 5.2 - Prob. 56ECh. 5.2 - Prob. 57ECh. 5.2 - Prob. 58ECh. 5.2 - Richter scale Use the formula in Problems 59-62....Ch. 5.2 - Richter scale Use the formula in Problems 59-62....Ch. 5.2 - Prob. 61ECh. 5.2 - Richter scale Use the formula in Problems 59-62....Ch. 5.2 - Prob. 63ECh. 5.2 - Prob. 64ECh. 5.2 - Prob. 65ECh. 5.2 - Prob. 66ECh. 5.2 - Prob. 67ECh. 5.2 - Prob. 68ECh. 5.2 - Prob. 69ECh. 5.2 - Prob. 70ECh. 5.2 - Doubling time In Problems 71 and 72, use the...Ch. 5.2 - Prob. 72ECh. 5.2 - 73. Women in the workforce For selected years from...Ch. 5.2 - Prob. 74ECh. 5.2 - 75. Modeling Diabetes As the following table...Ch. 5.2 - Prob. 76ECh. 5.2 - 77. Modeling Internet usage In 2015,88% of U.S....Ch. 5.2 - 78. Modeling Demographics The table below gives...Ch. 5.3 - 1. Suppose the sales of a product, in dollars, are...Ch. 5.3 - 2. Suppose the monthly demand for a product is...Ch. 5.3 - 3. Suppose the number of employees at a new...Ch. 5.3 - Prob. 1ECh. 5.3 - Prob. 2ECh. 5.3 - In Problems 1-22, solve each equation. Give...Ch. 5.3 - In Problems 1-22, solve each equation. Give...Ch. 5.3 - Prob. 5ECh. 5.3 - Prob. 6ECh. 5.3 - Prob. 7ECh. 5.3 - Prob. 8ECh. 5.3 - In Problems 1-22, solve each equation. Give...Ch. 5.3 - Prob. 10ECh. 5.3 - Prob. 11ECh. 5.3 - Prob. 12ECh. 5.3 - Prob. 13ECh. 5.3 - Prob. 14ECh. 5.3 - Prob. 15ECh. 5.3 - Prob. 16ECh. 5.3 - Prob. 17ECh. 5.3 - Prob. 18ECh. 5.3 - Prob. 19ECh. 5.3 - Prob. 20ECh. 5.3 - Prob. 21ECh. 5.3 - Prob. 22ECh. 5.3 - Prob. 23ECh. 5.3 - Prob. 24ECh. 5.3 - 25. Sales decay The sales decay for a product is...Ch. 5.3 - 26. Sales decay The sales of a product decline...Ch. 5.3 - 27. Inflation The purchasing power P (in dollars)...Ch. 5.3 - 28. Product reliability A statistical study shows...Ch. 5.3 - 29. Radioactive half-life An initial amount of 100...Ch. 5.3 - 30. Radioactive half-life A breeder reactor...Ch. 5.3 - 31. Population growth If the population of a...Ch. 5.3 - 32. Population growth The population of a certain...Ch. 5.3 - 33. Health care For the years from 2002 and...Ch. 5.3 - 34. Disposable income Disposable income is the...Ch. 5.3 - 35. Demand The demand function for a certain...Ch. 5.3 - 36. Demand The demand function for a product is...Ch. 5.3 - 37. Supply If the supply function for a product is...Ch. 5.3 - Prob. 38ECh. 5.3 - 39. Total cost The total cost function for x units...Ch. 5.3 - Prob. 40ECh. 5.3 - Prob. 41ECh. 5.3 - Prob. 42ECh. 5.3 - 43. Compound interest If $8500 is invested at...Ch. 5.3 - 44. Compound interest If $1000 is invested at 10%...Ch. 5.3 - 45. Compound interest If $5000 is invested at 9%...Ch. 5.3 - Prob. 46ECh. 5.3 - Profits An investment services company experienced...Ch. 5.3 - Profits An investment services company experienced...Ch. 5.3 - Prob. 49ECh. 5.3 - Prob. 50ECh. 5.3 - 51. Supply Suppose the supply of x units of a...Ch. 5.3 - 52. Demand Assume that the demand function for a...Ch. 5.3 - 53. Sales growth The president of a company...Ch. 5.3 - Prob. 54ECh. 5.3 - 55. Organizational growth Suppose that the...Ch. 5.3 - Prob. 56ECh. 5.3 - Prob. 57ECh. 5.3 - 58. Population growth Suppose that the number y of...Ch. 5.3 - 59. Spread of disease On a college campus of...Ch. 5.3 - 60. Spread of a rumor The number of people N(t) in...Ch. 5.3 - 61. Market share Suppose that the market share y...Ch. 5.3 - 62. Advertising An advertising agency has found...Ch. 5.3 - 63. Pollution Pollution levels in a lake have been...Ch. 5.3 - 64. Fish length Suppose that the length x (in...Ch. 5.3 - Prob. 65ECh. 5.3 - Prob. 66ECh. 5.3 - 67. Modeling Diabetes The following table gives...Ch. 5.3 - 68. Modeling U.S. population, ages 20-64 The...Ch. 5 - 1. Write each statement in logarithmic form.
Ch. 5 - Prob. 2RECh. 5 - Prob. 3RECh. 5 - Prob. 4RECh. 5 - Prob. 5RECh. 5 - Prob. 6RECh. 5 - Prob. 7RECh. 5 - Prob. 8RECh. 5 - Prob. 9RECh. 5 - Prob. 10RECh. 5 - Prob. 11RECh. 5 - Prob. 12RECh. 5 - In Problems 13-20, evaluate each logarithm without...Ch. 5 - Prob. 14RECh. 5 - Prob. 15RECh. 5 - In Problems 13-20, evaluate each logarithm without...Ch. 5 - In Problems 13-20, evaluate each logarithm without...Ch. 5 - Prob. 18RECh. 5 - Prob. 19RECh. 5 - Prob. 20RECh. 5 - Prob. 21RECh. 5 - Prob. 22RECh. 5 - In Problems 21-24, if , find each of the following...Ch. 5 - In Problems 21-24, if , find each of the following...Ch. 5 - Prob. 25RECh. 5 - Prob. 26RECh. 5 - 27. Is it true that ln for all positive values of...Ch. 5 - Prob. 28RECh. 5 - Prob. 29RECh. 5 - Prob. 30RECh. 5 - 31. If
Ch. 5 - Prob. 32RECh. 5 - Prob. 33RECh. 5 - Prob. 34RECh. 5 - Prob. 35RECh. 5 - Prob. 36RECh. 5 - In Problems 36-42, solve each equation.
37.
Ch. 5 - Prob. 38RECh. 5 - In Problems 36-42, solve each equation.
39.
Ch. 5 - In Problems 36-42, solve each equation.
40.
Ch. 5 - Prob. 41RECh. 5 - In Problems 36-42, solve each equation.
42.
Ch. 5 - Prob. 43RECh. 5 - Prob. 44RECh. 5 - Prob. 45RECh. 5 - Prob. 46RECh. 5 - Prob. 47RECh. 5 - Prob. 48RECh. 5 - Prob. 49RECh. 5 - 50. Sales decay The sales decay for a product is...Ch. 5 - 51. Total cost The total cost for x units of a...Ch. 5 - Prob. 52RECh. 5 - Prob. 53RECh. 5 - 54. Compound interest If $1000 is invested at 12%,...Ch. 5 - 55. Compound interest If $5000 is invested at...Ch. 5 - Prob. 56RECh. 5 - 57. Advertising and sales After hiring a new VP...Ch. 5 - Prob. 58RECh. 5 - Prob. 1TCh. 5 - Prob. 2TCh. 5 - Prob. 3TCh. 5 - Prob. 4TCh. 5 - Prob. 5TCh. 5 - Prob. 6TCh. 5 - Prob. 7TCh. 5 - Prob. 8TCh. 5 - Prob. 9TCh. 5 - Prob. 10TCh. 5 - Prob. 11TCh. 5 - Prob. 12TCh. 5 - Prob. 13TCh. 5 - Prob. 14TCh. 5 - Prob. 15TCh. 5 - Prob. 16TCh. 5 - Prob. 17TCh. 5 - Prob. 18TCh. 5 - Prob. 19TCh. 5 - Prob. 20TCh. 5 - Prob. 21TCh. 5 - Prob. 22TCh. 5 - Prob. 23TCh. 5 - Prob. 24TCh. 5 - Prob. 25TCh. 5 - Prob. 26TCh. 5 - 27. The total national health expenditures per...Ch. 5 - 28. A company plans to phase out one model of its...Ch. 5 - 29. The supply function for x units of a certain...Ch. 5 - 30. The total U.S. personal income I (in billions...Ch. 5 - Prob. 31T
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