EP STATISTICS-ACCESS (18 WEEK)
5th Edition
ISBN: 9780135960592
Author: Sullivan
Publisher: PEARSON CO
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Chapter 7.2, Problem 34AYU
To determine
The 90th percentile.
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Question 1. Your manager asks you to explain why the Black-Scholes model may be inappro-
priate for pricing options in practice. Give one reason that would substantiate this claim?
Question 2. We consider stock #1 and stock #2 in the model of Problem 2. Your manager
asks you to pick only one of them to invest in based on the model provided. Which one do you
choose and why ?
Question 3. Let (St) to be an asset modeled by the Black-Scholes SDE. Let Ft be the price
at time t of a European put with maturity T and strike price K. Then, the discounted option
price process (ert Ft) t20 is a martingale. True or False? (Explain your answer.)
Question 4. You are considering pricing an American put option using a Black-Scholes model
for the underlying stock. An explicit formula for the price doesn't exist. In just a few words (no
more than 2 sentences), explain how you would proceed to price it.
Question 5. We model a short rate with a Ho-Lee model drt = ln(1+t) dt +2dWt. Then the
interest rate…
In this problem, we consider a Brownian motion (W+) t≥0. We consider a stock model (St)t>0
given (under the measure P) by
d.St 0.03 St dt + 0.2 St dwt,
with So 2. We assume that the interest rate is r = 0.06. The purpose of this problem is to
price an option on this stock (which we name cubic put). This option is European-type, with
maturity 3 months (i.e. T = 0.25 years), and payoff given by
F = (8-5)+
(a) Write the Stochastic Differential Equation satisfied by (St) under the risk-neutral measure
Q. (You don't need to prove it, simply give the answer.)
(b) Give the price of a regular European put on (St) with maturity 3 months and strike K = 2.
(c) Let X =
S. Find the Stochastic Differential Equation satisfied by the process (Xt)
under the measure Q.
(d) Find an explicit expression for X₁ = S3 under measure Q.
(e) Using the results above, find the price of the cubic put option mentioned above.
(f) Is the price in (e) the same as in question (b)? (Explain why.)
The managing director of a consulting group has the accompanying monthly data on total overhead costs and professional labor hours to bill to clients. Complete parts a through c.
Question content area bottom
Part 1
a. Develop a simple linear regression model between billable hours and overhead costs.
Overhead
Costsequals=212495.2212495.2plus+left parenthesis 42.4857 right parenthesis42.485742.4857times×Billable
Hours
(Round the constant to one decimal place as needed. Round the coefficient to four decimal places as needed. Do not include the $ symbol in your answers.)
Part 2
b. Interpret the coefficients of your regression model. Specifically, what does the fixed component of the model mean to the consulting firm?
Interpret the fixed term,
b 0b0,
if appropriate. Choose the correct answer below.
A.
The value of
b 0b0
is the predicted billable hours for an overhead cost of 0 dollars.
B.
It is not appropriate to interpret
b 0b0,
because its value…
Chapter 7 Solutions
EP STATISTICS-ACCESS (18 WEEK)
Ch. 7.1 - 1. A ______ _____ ______ is an equation used to...Ch. 7.1 - Prob. 2AYUCh. 7.1 - Prob. 3AYUCh. 7.1 - Prob. 4AYUCh. 7.1 - 5. The points at x = ________ and x = ________ are...Ch. 7.1 - 6. The area under a normal curve can be...Ch. 7.1 - For Problems 7–12, determine whether the graph can...Ch. 7.1 - For Problems 7–12, determine whether the graph can...Ch. 7.1 - For Problems 7–12, determine whether the graph can...Ch. 7.1 - Prob. 10AYU
Ch. 7.1 - For Problems 7–12, determine whether the graph can...Ch. 7.1 - For Problems 7–12, determine whether the graph can...Ch. 7.1 - Problems 13–16 use the information presented in...Ch. 7.1 - Prob. 14AYUCh. 7.1 - Prob. 15AYUCh. 7.1 - Prob. 16AYUCh. 7.1 - 17. Uniform Distribution The random-number...Ch. 7.1 - Prob. 18AYUCh. 7.1 - In Problems 19–22, determine whether or not the...Ch. 7.1 - Prob. 20AYUCh. 7.1 - In Problems 19–22, determine whether or not the...Ch. 7.1 - In Problems 19–22, determine whether or not the...Ch. 7.1 - 23. One graph in the figure on the following page...Ch. 7.1 - Prob. 24AYUCh. 7.1 - In Problems 25–28, the graph of a normal curve is...Ch. 7.1 - Prob. 26AYUCh. 7.1 - In Problems 25–28, the graph of a normal curve is...Ch. 7.1 - Prob. 28AYUCh. 7.1 - In Problems 29 and 30, draw a normal curve and...Ch. 7.1 - Prob. 30AYUCh. 7.1 - NW 31. You Explain It! Cell Phone Rates Monthly...Ch. 7.1 - Prob. 32AYUCh. 7.1 - 33. You Explain It! Birth Weights The birth...Ch. 7.1 - Prob. 34AYUCh. 7.1 - NW 35. You Explain It! Gestation Period The...Ch. 7.1 - Prob. 36AYUCh. 7.1 - Prob. 37AYUCh. 7.1 - 38. Heights of Five-Year-Old Females The following...Ch. 7.1 - Prob. 39AYUCh. 7.2 - 1. A random variable Z that is normally...Ch. 7.2 - 2. The notation zα is the z-score such that the...Ch. 7.2 - 3. If X is a normal random variable with mean 40...Ch. 7.2 - Prob. 4AYUCh. 7.2 - In Problems 5–12, find the indicated areas. For...Ch. 7.2 - Prob. 6AYUCh. 7.2 - In Problems 5–12, find the indicated areas. For...Ch. 7.2 - In Problems 5–12, find the indicated areas. For...Ch. 7.2 - In Problems 5–12, find the indicated areas. For...Ch. 7.2 - Prob. 10AYUCh. 7.2 - In Problems 5–12, find the indicated areas. For...Ch. 7.2 - Prob. 12AYUCh. 7.2 - In Problems 13–18, find the indicated z-score. Be...Ch. 7.2 - Prob. 14AYUCh. 7.2 - In Problems 13–18, find the indicated z-score. Be...Ch. 7.2 - In Problems 13–18, find the indicated z-score. Be...Ch. 7.2 - In Problems 13–18, find the indicated z-score. Be...Ch. 7.2 - Prob. 18AYUCh. 7.2 - In Problems 19–22, find the value of zα.
NW 19....Ch. 7.2 - Prob. 20AYUCh. 7.2 - In Problems 19–22, find the value of zα.
21....Ch. 7.2 - Prob. 22AYUCh. 7.2 - In Problems 23–32, assume that the random variable...Ch. 7.2 - In Problems 23–32, assume that the random variable...Ch. 7.2 - In Problems 23–32, assume that the random variable...Ch. 7.2 - Prob. 26AYUCh. 7.2 - In Problems 23–32, assume that the random variable...Ch. 7.2 - Prob. 28AYUCh. 7.2 - In Problems 23–32, assume that the random variable...Ch. 7.2 - Prob. 30AYUCh. 7.2 - In Problems 23–32, assume that the random variable...Ch. 7.2 - In Problems 23–32, assume that the random variable...Ch. 7.2 - In Problems 33–36, assume that the random variable...Ch. 7.2 - Prob. 34AYUCh. 7.2 - In Problems 33–36, assume that the random variable...Ch. 7.2 - Prob. 36AYUCh. 7.2 - 37. Egg Incubation Times The mean incubation time...Ch. 7.2 - 38. Reading Rates The reading speed of sixth-grade...Ch. 7.2 - Prob. 39AYUCh. 7.2 - 40. Wendy's Drive-Through Fast-food restaurants...Ch. 7.2 - 41. Gestation Period The lengths of human...Ch. 7.2 - Prob. 42AYUCh. 7.2 - Prob. 43AYUCh. 7.2 - Prob. 44AYUCh. 7.2 - Prob. 45AYUCh. 7.2 - Prob. 46AYUCh. 7.2 - NW 47. Egg Incubation Times The mean incubation...Ch. 7.2 - Prob. 48AYUCh. 7.2 - Prob. 49AYUCh. 7.2 - Prob. 50AYUCh. 7.2 - Prob. 51AYUCh. 7.2 - Prob. 52AYUCh. 7.2 - 53. Give three interpretations for the area under...Ch. 7.2 - Prob. 54AYUCh. 7.2 - Prob. 55AYUCh. 7.2 - Prob. 56AYUCh. 7.3 - 1. A _______ _________ ______ is a graph that...Ch. 7.3 - Prob. 2AYUCh. 7.3 - In Problems 3–6, use the results in the table to...Ch. 7.3 - Prob. 4AYUCh. 7.3 - Prob. 5AYUCh. 7.3 - Prob. 6AYUCh. 7.3 - In Problems 7–10, use a normal probability plot to...Ch. 7.3 - In Problems 7–10, use a normal probability plot to...Ch. 7.3 - In Problems 7–10, use a normal probability plot to...Ch. 7.3 - In Problems 7–10, use a normal probability plot to...Ch. 7.3 - Prob. 11AYUCh. 7.3 - Prob. 12AYUCh. 7.3 - Prob. 13AYUCh. 7.4 - 1. In a binomial experiment with n trials and...Ch. 7.4 - 2. When adding or subtracting 0.5 from x, we are...Ch. 7.4 - Prob. 3AYUCh. 7.4 - Prob. 4AYUCh. 7.4 - Prob. 5AYUCh. 7.4 - Prob. 6AYUCh. 7.4 - Prob. 7AYUCh. 7.4 - Prob. 8AYUCh. 7.4 - In Problems 5–14, a discrete random variable is...Ch. 7.4 - Prob. 10AYUCh. 7.4 - Prob. 11AYUCh. 7.4 - Prob. 12AYUCh. 7.4 - Prob. 13AYUCh. 7.4 - Prob. 14AYUCh. 7.4 - Prob. 15AYUCh. 7.4 - Prob. 16AYUCh. 7.4 - Prob. 17AYUCh. 7.4 - Prob. 18AYUCh. 7.4 - In Problems 15–20, compute P(x) using the binomial...Ch. 7.4 - Prob. 20AYUCh. 7.4 - 21. On-Time Flights According to American...Ch. 7.4 - Prob. 22AYUCh. 7.4 - Prob. 23AYUCh. 7.4 - Prob. 24AYUCh. 7.4 - Prob. 25AYUCh. 7.4 - 26. Females Living at Home According to the...Ch. 7.4 - Prob. 27AYUCh. 7.4 - Prob. 28AYUCh. 7 - Prob. 1RECh. 7 - In Problems 2 and 3, draw a standard normal curve...Ch. 7 - In Problems 2 and 3, draw a standard normal curve...Ch. 7 - 4. Find the z-score such that the area to the...Ch. 7 - Prob. 5RECh. 7 - Prob. 6RECh. 7 - In Problems 7–9, draw the normal curve with the...Ch. 7 - Prob. 8RECh. 7 - Prob. 9RECh. 7 - Prob. 10RECh. 7 - Prob. 11RECh. 7 - Prob. 12RECh. 7 - Prob. 13RECh. 7 - Prob. 14RECh. 7 - Prob. 15RECh. 7 - Prob. 16RECh. 7 - Prob. 17RECh. 7 - Prob. 18RECh. 7 - Prob. 19RECh. 7 - Prob. 20RECh. 7 - Prob. 1CTCh. 7 - Prob. 2CTCh. 7 - Prob. 3CTCh. 7 - Prob. 4CTCh. 7 - Prob. 5CTCh. 7 - Prob. 6CTCh. 7 - Prob. 7CTCh. 7 - Prob. 8CTCh. 7 - Prob. 9CTCh. 7 - Prob. 10CTCh. 7 - Prob. 11CTCh. 7 - Prob. 1CSCh. 7 - Prob. 2CS
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- Using the accompanying Home Market Value data and associated regression line, Market ValueMarket Valueequals=$28,416+$37.066×Square Feet, compute the errors associated with each observation using the formula e Subscript ieiequals=Upper Y Subscript iYiminus−ModifyingAbove Upper Y with caret Subscript iYi and construct a frequency distribution and histogram. LOADING... Click the icon to view the Home Market Value data. Question content area bottom Part 1 Construct a frequency distribution of the errors, e Subscript iei. (Type whole numbers.) Error Frequency minus−15 comma 00015,000less than< e Subscript iei less than or equals≤minus−10 comma 00010,000 0 minus−10 comma 00010,000less than< e Subscript iei less than or equals≤minus−50005000 5 minus−50005000less than< e Subscript iei less than or equals≤0 21 0less than< e Subscript iei less than or equals≤50005000 9…arrow_forwardThe managing director of a consulting group has the accompanying monthly data on total overhead costs and professional labor hours to bill to clients. Complete parts a through c Overhead Costs Billable Hours345000 3000385000 4000410000 5000462000 6000530000 7000545000 8000arrow_forwardUsing the accompanying Home Market Value data and associated regression line, Market ValueMarket Valueequals=$28,416plus+$37.066×Square Feet, compute the errors associated with each observation using the formula e Subscript ieiequals=Upper Y Subscript iYiminus−ModifyingAbove Upper Y with caret Subscript iYi and construct a frequency distribution and histogram. Square Feet Market Value1813 911001916 1043001842 934001814 909001836 1020002030 1085001731 877001852 960001793 893001665 884001852 1009001619 967001690 876002370 1139002373 1131001666 875002122 1161001619 946001729 863001667 871001522 833001484 798001589 814001600 871001484 825001483 787001522 877001703 942001485 820001468 881001519 882001518 885001483 765001522 844001668 909001587 810001782 912001483 812001519 1007001522 872001684 966001581 86200arrow_forward
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