2nd Edition

ISBN: 9780190663872

Author: Kenneth A. Gould; Tammy L. Lewis

Publisher: Oxford University Press Academic US

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Chapter 5, Problem 95CRE

Likely to Become Rich? A Gallup poll conducted in 2012 asked people who were not rich whether they thought it was likely that they would become rich. The table gives the total number of people in each age range (rounded) and the percent who said they were likely to become rich.

Chapter 5, Problem 95CRE, Likely to Become Rich? A Gallup poll conducted in 2012 asked people who were not rich whether they , example 1

a. Make a two-way table for counts (not percentages). The table is started below.

Chapter 5, Problem 95CRE, Likely to Become Rich? A Gallup poll conducted in 2012 asked people who were not rich whether they , example 2

b. What is the tendency? Which group was most likely to think they might become rich, and which group was least likely to think they might become rich? Does this make sense to you?

c. From your table, if one person is selected from the table, what is the probability that this person is young (18-29) AND thinks it is likely that she of he will become rich.

d. If you select a person from the people who think it is likely that she or he will become rich, what is the probability that this person is young (18-29)?

e. If you select a young person (18-29), what is the probability that this person thinks it is likely they she or he will become rich?

f. Why is the probability in part c smaller than those in parts d and e?

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Chapter 5, Problem 94CRE

Chapter 5, Problem 96CRE

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Please solving problem2 Problem1 We consider a two-period binomial model with the following properties: each period lastsone (1) year and the current stock price is S0 = 4. On each period, the stock price doubleswhen it moves up and is reduced by half when it moves down. The annual interest rateon the money market is 25%. (This model is the same as in Prob. 1 of HW#2).We consider four options on this market: A European call option with maturity T = 2 years and strike price K = 5; A European put option with maturity T = 2 years and strike price K = 5; An American call option with maturity T = 2 years and strike price K = 5; An American put option with maturity T = 2 years and strike price K = 5.(a) Find the price at time 0 of both European options.(b) Find the price at time 0 of both American options. Compare your results with (a)and comment.(c) For each of the American options, describe the optimal exercising strategy.

Problem 1.We consider a two-period binomial model with the following properties: each period lastsone (1) year and the current stock price is S0 = 4. On each period, the stock price doubleswhen it moves up and is reduced by half when it moves down. The annual interest rateon the money market is 25%. We consider four options on this market: A European call option with maturity T = 2 years and strike price K = 5; A European put option with maturity T = 2 years and strike price K = 5; An American call option with maturity T = 2 years and strike price K = 5; An American put option with maturity T = 2 years and strike price K = 5.(a) Find the price at time 0 of both European options.(b) Find the price at time 0 of both American options. Compare your results with (a)and comment.(c) For each of the American options, describe the optimal exercising strategy.(d) We assume that you sell the American put to a market participant A for the pricefound in (b). Explain how you act on the market…

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Solution Summary: The author explains that the Gallup Poll is conducted on a sample of people who were not rich in order to determine their thoughts on the likelihood of becoming rich.

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