Modern Business Statistics with Microsoft Office Excel (with XLSTAT Education Edition Printed Access Card) (MindTap Course List)
Modern Business Statistics with Microsoft Office Excel (with XLSTAT Education Edition Printed Access Card) (MindTap Course List)
6th Edition
ISBN: 9781337115186
Author: David R. Anderson, Dennis J. Sweeney, Thomas A. Williams, Jeffrey D. Camm, James J. Cochran
Publisher: Cengage Learning
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Chapter 6.3, Problem 28E

Battery life between charges for the Motorola Droid Razr Maxx is 20 hours when the primary use is talk time (The Wall Street Journal, March 7, 2012). The battery life drops to 7 hours when the phone is primarily used for Internet applications over cellular. Assume that the battery life in both cases follows an exponential distribution.

  1. a. Show the probability density function for battery life for the Droid Razr Maxx phone when its primary use is talk time.
  2. b. what is the probability that the battery charge for a randomly selected Droid Razr Maxx phone will last no more than 15 hours when its primary use is talk time?
  3. c. what is the probability that the battery charge for a randomly selected Droid Razr Maxx phone will last more than 20 hours when its primary use is talk time?
  4. d. What is the probability that the battery charge for a randomly selected Droid Razr Maxx phone will last no more than 5 hours when its primary use is Internet applications?
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Question 2. An American option on a stock has payoff given by F = f(St) when it is exercised at time t. We know that the function f is convex. A person claims that because of convexity, it is optimal to exercise at expiration T. Do you agree with them?
Question 4. We consider a CRR model with So == 5 and up and down factors u = 1.03 and d = 0.96. We consider the interest rate r = 4% (over one period). Is this a suitable CRR model? (Explain your answer.)
Question 3. We want to price a put option with strike price K and expiration T. Two financial advisors estimate the parameters with two different statistical methods: they obtain the same return rate μ, the same volatility σ, but the first advisor has interest r₁ and the second advisor has interest rate r2 (r1>r2). They both use a CRR model with the same number of periods to price the option. Which advisor will get the larger price? (Explain your answer.)

Chapter 6 Solutions

Modern Business Statistics with Microsoft Office Excel (with XLSTAT Education Edition Printed Access Card) (MindTap Course List)

Ch. 6.2 - 11. Given that z is a standard normal random...Ch. 6.2 - 12. Given that z is a standard normal random...Ch. 6.2 - 13. Given that z is a standard normal random...Ch. 6.2 - Prob. 14ECh. 6.2 - Given that z is a standard normal random variable,...Ch. 6.2 - Given that z is a standard normal random variable,...Ch. 6.2 - The mean cost of domestic airfares in the United...Ch. 6.2 - The average return for large-cap domestic stock...Ch. 6.2 - Automobile Repair Costs. Automobile repair costs...Ch. 6.2 - Gasoline Prices. Suppose that the average price...Ch. 6.2 - Mensa Membership. A person must score in the upper...Ch. 6.2 - Television Viewing. Suppose that the mean daily...Ch. 6.2 - Time to Complete Final Exam. The time needed to...Ch. 6.2 - Labor Day Travel Costs. The American Automobile...Ch. 6.2 - New York City is the most expensive city in the...Ch. 6.3 - 32. Consider the following exponential probability...Ch. 6.3 - Prob. 27ECh. 6.3 - 34. Battery life between charges for the Motorola...Ch. 6.3 - 35. The time between arrivals of vehicles at a...Ch. 6.3 - 36. Comcast Corporation is the largest cable...Ch. 6.3 - 37. Wendy’s restaurant has been recognized for...Ch. 6.3 - 38. The Boston Fire Department receives 911 calls...Ch. 6 - 39. A business executive, transferred from Chicago...Ch. 6 - NCAA Scholarships. The NCAA estimates that the...Ch. 6 - Production Defects. Motorola used the normal...Ch. 6 - During early 2012, economic hardship was...Ch. 6 - The port of South Louisiana, located along 54...Ch. 6 - Service Contract Offer. Ward Doering Auto Sales is...Ch. 6 - Wedding Costs. The XO Group Inc. conducted a 2015...Ch. 6 - College Admissions Test Scores. Assume that the...Ch. 6 - College Graduates Starting Salaries. According to...Ch. 6 - 48. A machine fills containers with a particular...Ch. 6 - Prob. 43SECh. 6 - Prob. 44SECh. 6 - 53. Do you dislike waiting in line? Supermarket...Ch. 6 - 54. The time (in minutes) between telephone calls...
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