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Elementary Statistics: Picturing the World (7th Edition)
7th Edition
ISBN: 9780134683416
Author: Ron Larson, Betsy Farber
Publisher: PEARSON
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Textbook Question
Chapter 7.3, Problem 8E
In Exercises 3–8, find the critical value(s) and rejection region(s) for the type of t-test with level of significance α and
8. Two-tailed test, α = 0.10, n = 38
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Let x be a random variable that represents the percentage of successful free throws a professional basketball player makes in a season. Let y be a random variable that represents the percentage of successful field goals a professional basketball player makes in a season. A random sample of n = 6 professional basketball players gave the following information.
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Chapter 7 Solutions
Elementary Statistics: Picturing the World (7th Edition)
Ch. 7.1 - Write each claim as a mathematical statement....Ch. 7.1 - A company specializing in parachute assembly...Ch. 7.1 - For each claim, state H0 and Ha in words and in...Ch. 7.1 - You perform a hypothesis test for each claim. How...Ch. 7.1 - 1. You represent a chemical company that is being...Ch. 7.1 - What are the two types of hypotheses used in a...Ch. 7.1 - Describe the two types of errors possible in a...Ch. 7.1 - Prob. 3ECh. 7.1 - Does failing to reject the null hypothesis mean...Ch. 7.1 - True or False? In Exercises 510, determine whether...
Ch. 7.1 - True or False? In Exercises 510, determine whether...Ch. 7.1 - True or False? In Exercises 510, determine whether...Ch. 7.1 - True or False? In Exercises 510, determine whether...Ch. 7.1 - True or False? In Exercises 510, determine whether...Ch. 7.1 - True or False? In Exercises 510, determine whether...Ch. 7.1 - Stating Hypotheses In Exercises 1116, the...Ch. 7.1 - Stating Hypotheses In Exercises 1116, the...Ch. 7.1 - Stating Hypotheses In Exercises 1116, the...Ch. 7.1 - Stating Hypotheses In Exercises 1116, the...Ch. 7.1 - Stating Hypotheses In Exercises 1116, the...Ch. 7.1 - Stating Hypotheses In Exercises 1116, the...Ch. 7.1 - Graphical Analysis In Exercises 1720, match the...Ch. 7.1 - Graphical Analysis In Exercises 1720, match the...Ch. 7.1 - Graphical Analysis In Exercises 1720, match the...Ch. 7.1 - Graphical Analysis In Exercises 1720, match the...Ch. 7.1 - Identifying a Test In Exercises 2124, determine...Ch. 7.1 - Identifying a Test In Exercises 2124, determine...Ch. 7.1 - Identifying a Test In Exercises 2124, determine...Ch. 7.1 - Identifying a Test In Exercises 2124, determine...Ch. 7.1 - Stating the Null and Alternative Hypotheses In...Ch. 7.1 - Stating the Null and Alternative Hypotheses In...Ch. 7.1 - Stating the Null and Alternative Hypotheses In...Ch. 7.1 - Stating the Null and Alternative Hypotheses In...Ch. 7.1 - Stating the Null and Alternative Hypotheses In...Ch. 7.1 - Stating the Null and Alternative Hypotheses In...Ch. 7.1 - Identifying Type I and Type II Errors In Exercises...Ch. 7.1 - Identifying Type I and Type II Errors In Exercises...Ch. 7.1 - Identifying Type I and Type II Errors In Exercises...Ch. 7.1 - Identifying Type I and Type II Errors In Exercises...Ch. 7.1 - Identifying Type I and Type II Errors In Exercises...Ch. 7.1 - Identifying Type I and Type II Errors In Exercises...Ch. 7.1 - Identifying the Nature of a Hypothesis Test In...Ch. 7.1 - Identifying the Nature of a Hypothesis Test In...Ch. 7.1 - Identifying the Nature of a Hypothesis Test In...Ch. 7.1 - Identifying the Nature of a Hypothesis Test In...Ch. 7.1 - Identifying the Nature of a Hypothesis Test In...Ch. 7.1 - Identifying the Nature of a Hypothesis Test In...Ch. 7.1 - Interpreting a Decision In Exercises 4348,...Ch. 7.1 - Interpreting a Decision In Exercises 4348,...Ch. 7.1 - Interpreting a Decision In Exercises 4348,...Ch. 7.1 - Interpreting a Decision In Exercises 4348,...Ch. 7.1 - Interpreting a Decision In Exercises 4348,...Ch. 7.1 - Interpreting a Decision In Exercises 4348,...Ch. 7.1 - Writing Hypotheses: Medicine A medical research...Ch. 7.1 - Writing Hypotheses: Transportation Network Company...Ch. 7.1 - Writing Hypotheses: Backpack Manufacturer A...Ch. 7.1 - Writing Hypotheses: Internet Provider An Internet...Ch. 7.1 - Prob. 53ECh. 7.1 - Getting at the Concept Explain why a level of...Ch. 7.1 - Prob. 55ECh. 7.1 - Prob. 56ECh. 7.1 - Graphical Analysis In Exercises 5760, you are...Ch. 7.1 - Graphical Analysis In Exercises 5760, you are...Ch. 7.1 - Graphical Analysis In Exercises 5760, you are...Ch. 7.1 - Graphical Analysis In Exercises 5760, you are...Ch. 7.2 - The P-value for a hypothesis test is P = 0.0745....Ch. 7.2 - Find the P-value for a left-tailed hypothesis test...Ch. 7.2 - Find the P-value for a two-tailed hypothesis test...Ch. 7.2 - Homeowners claim that the mean speed of...Ch. 7.2 - According to a study of employed U.S. adults ages...Ch. 7.2 - Repeat Example 6 using a level of significance of ...Ch. 7.2 - Find the critical value and rejection region for a...Ch. 7.2 - Find the critical values and rejection regions for...Ch. 7.2 - The CEO of the company in Example 9 claims that...Ch. 7.2 - In Example 10, at = 0.01, is there enough...Ch. 7.2 - Explain the difference between the z-test for ...Ch. 7.2 - In hypothesis testing, does using the critical...Ch. 7.2 - Interpreting a P-Value In Exercises 38, the...Ch. 7.2 - Interpreting a P-Value In Exercises 38, the...Ch. 7.2 - Interpreting a P-Value In Exercises 38, the...Ch. 7.2 - Interpreting a P-Value In Exercises 38, the...Ch. 7.2 - Interpreting a P-Value In Exercises 38, the...Ch. 7.2 - Interpreting a P-Value In Exercises 38, the...Ch. 7.2 - Finding a P-Value In Exercises 914, find the...Ch. 7.2 - Finding a P-Value In Exercises 914, find the...Ch. 7.2 - Finding a P-Value In Exercises 914, find the...Ch. 7.2 - Finding a P-Value In Exercises 914, find the...Ch. 7.2 - Finding a P-Value In Exercises 914, find the...Ch. 7.2 - Finding a P-Value In Exercises 914, find the...Ch. 7.2 - Graphical Analysis In Exercises 15 and 16, match...Ch. 7.2 - Graphical Analysis In Exercises 15 and 16, match...Ch. 7.2 - In Exercises 17 and 18, use the TI-84 Plus...Ch. 7.2 - In Exercises 17 and 18, use the TI-84 Plus...Ch. 7.2 - Finding Critical Values and Rejection Regions In...Ch. 7.2 - Finding Critical Values and Rejection Regions In...Ch. 7.2 - Finding Critical Values and Rejection Regions In...Ch. 7.2 - Finding Critical Values and Rejection Regions In...Ch. 7.2 - Finding Critical Values and Rejection Regions In...Ch. 7.2 - Finding Critical Values and Rejection Regions In...Ch. 7.2 - Graphical Analysis In Exercises 25 and 26, state...Ch. 7.2 - Graphical Analysis In Exercises 25 and 26, state...Ch. 7.2 - In Exercises 2730, test the claim about the...Ch. 7.2 - In Exercises 2730, test the claim about the...Ch. 7.2 - In Exercises 2730, test the claim about the...Ch. 7.2 - In Exercises 2730, test the claim about the...Ch. 7.2 - Hypothesis Testing Using a P-Value In Exercises...Ch. 7.2 - Hypothesis Testing Using a P-Value In Exercises...Ch. 7.2 - Hypothesis Testing Using a P-Value In Exercises...Ch. 7.2 - Hypothesis Testing Using a P-Value In Exercises...Ch. 7.2 - Hypothesis Testing Using a P-Value In Exercises...Ch. 7.2 - Hypothesis Testing Using a P-Value In Exercises...Ch. 7.2 - Hypothesis Testing Using Rejection Region(s) In...Ch. 7.2 - Hypothesis Testing Using Rejection Region(s) In...Ch. 7.2 - Hypothesis Testing Using Rejection Region(s) In...Ch. 7.2 - Hypothesis Testing Using Rejection Region(s) In...Ch. 7.2 - Hypothesis Testing Using Rejection Region(s) In...Ch. 7.2 - Hypothesis Testing Using Rejection Region(s) In...Ch. 7.2 - Writing When P , does the standardized test...Ch. 7.2 - Writing In a right-tailed test where P , does the...Ch. 7.3 - Find the critical value for a left-tailed test...Ch. 7.3 - Find the critical value t0 for a right-tailed lest...Ch. 7.3 - Find the critical values t0 and t0 for a...Ch. 7.3 - An industry analyst says that the mean age of a...Ch. 7.3 - The company in Example 5 claims that the mean...Ch. 7.3 - Another department of motor vehicles office claims...Ch. 7.3 - Explain how to find critical values for a...Ch. 7.3 - Explain how to use a t-test to test a hypothesized...Ch. 7.3 - In Exercises 38, find the critical value(s) and...Ch. 7.3 - In Exercises 38, find the critical value(s) and...Ch. 7.3 - In Exercises 38, find the critical value(s) and...Ch. 7.3 - In Exercises 38, find the critical value(s) and...Ch. 7.3 - In Exercises 38, find the critical value(s) and...Ch. 7.3 - In Exercises 38, find the critical value(s) and...Ch. 7.3 - Graphical Analysis In Exercises 912, state whether...Ch. 7.3 - Graphical Analysis In Exercises 912, state whether...Ch. 7.3 - Graphical Analysis In Exercises 912, state whether...Ch. 7.3 - Graphical Analysis In Exercises 912, state whether...Ch. 7.3 - In Exercises 1318, test the claim about the...Ch. 7.3 - In Exercises 1318, test the claim about the...Ch. 7.3 - In Exercises 1318, test the claim about the...Ch. 7.3 - In Exercises 1318, test the claim about the...Ch. 7.3 - In Exercises 1318, test the claim about the...Ch. 7.3 - In Exercises 1318, test the claim about the...Ch. 7.3 - Hypothesis Testing Using Rejection Regions In...Ch. 7.3 - Hypothesis Testing Using Rejection Regions In...Ch. 7.3 - Hypothesis Testing Using Rejection Regions In...Ch. 7.3 - Hypothesis Testing Using Rejection Regions In...Ch. 7.3 - Hypothesis Testing Using Rejection Regions In...Ch. 7.3 - Hypothesis Testing Using Rejection Regions In...Ch. 7.3 - Hypothesis Testing Using Rejection Regions In...Ch. 7.3 - Hypothesis Testing Using Rejection Regions In...Ch. 7.3 - Using a P-Value with a t-Test In Exercises 2730,...Ch. 7.3 - Using a P-Value with a t-Test In Exercises 2730,...Ch. 7.3 - Using a P-Value with a t-Test In Exercises 2730,...Ch. 7.3 - Using a P-Value with a t-Test In Exercises 2730,...Ch. 7.3 - Deciding on a Distribution In Exercises 31 and 32,...Ch. 7.3 - Prob. 32ECh. 7.3 - Writing You are testing a claim and incorrectly...Ch. 7.3 - Set n = 15, Mean = 40, Std. Dev. = 5, and the...Ch. 7.3 - Prob. 2ACh. 7.3 - Set n = 25, Mean = 25, Std. Dev. = 3, and the...Ch. 7.3 - Human Body Temperature: Whats Normal? In an...Ch. 7.3 - Human Body Temperature: Whats Normal? In an...Ch. 7.3 - Human Body Temperature: Whats Normal? In an...Ch. 7.3 - Human Body Temperature: Whats Normal? In an...Ch. 7.3 - Human Body Temperature: Whats Normal? In an...Ch. 7.3 - In an article in the Journal of Statistics...Ch. 7.4 - A researcher claims that more than 90% of U.S....Ch. 7.4 - A researcher claims that 67% of U.S. adults...Ch. 7.4 - Explain how to determine whether a normal...Ch. 7.4 - Explain how to test a population proportion p.Ch. 7.4 - In Exercises 36, determine whether a normal...Ch. 7.4 - In Exercises 36, determine whether a normal...Ch. 7.4 - In Exercises 36, determine whether a normal...Ch. 7.4 - In Exercises 36, determine whether a normal...Ch. 7.4 - Hypothesis Testing Using Rejection Regions In...Ch. 7.4 - Hypothesis Testing Using Rejection Regions In...Ch. 7.4 - Hypothesis Testing Using Rejection Regions In...Ch. 7.4 - Working Students An education researcher claims...Ch. 7.4 - Hypothesis Testing Using Rejection Regions In...Ch. 7.4 - Hypothesis Testing Using Rejection Regions In...Ch. 7.4 - Hypothesis Testing Using a P-Value In Exercises...Ch. 7.4 - Hypothesis Testing Using a P-Value In Exercises...Ch. 7.4 - Hypothesis Testing Using a P-Value In Exercises...Ch. 7.4 - Hypothesis Testing Using a P-Value In Exercises...Ch. 7.4 - Protecting the Environment In Exercises 17 and 18,...Ch. 7.4 - What Are Peoples Attitudes About Protecting the...Ch. 7.4 - Alternative Formula In Exercises 19 and 20, use...Ch. 7.4 - The alternative formula is derived from the...Ch. 7.4 - Set n = 25 and True p = 0.35. Test the claim that...Ch. 7.4 - Prob. 2ACh. 7.5 - Find the critical value02 right-tailed test when n...Ch. 7.5 - Prob. 2TYCh. 7.5 - Prob. 3TYCh. 7.5 - A bottling company claims that the variance of the...Ch. 7.5 - Prob. 5TYCh. 7.5 - A company that offers dieting products and weight...Ch. 7.5 - Explain how to find critical values in a...Ch. 7.5 - Can a critical value for the chi-square test be...Ch. 7.5 - Prob. 3ECh. 7.5 - Prob. 4ECh. 7.5 - In Exercises 512, find the critical value(s) and...Ch. 7.5 - In Exercises 512, find the critical value(s) and...Ch. 7.5 - In Exercises 512, find the critical value(s) and...Ch. 7.5 - In Exercises 512, find the critical value(s) and...Ch. 7.5 - In Exercises 512, find the critical value(s) and...Ch. 7.5 - In Exercises 512, find the critical value(s) and...Ch. 7.5 - In Exercises 512, find the critical value(s) and...Ch. 7.5 - In Exercises 512, find the critical value(s) and...Ch. 7.5 - Graphical Analysis In Exercises 13 and 14, state...Ch. 7.5 - Prob. 14ECh. 7.5 - In Exercises 1522, test the claim about the...Ch. 7.5 - Prob. 16ECh. 7.5 - In Exercises 1522, test the claim about the...Ch. 7.5 - In Exercises 1522, test the claim about the...Ch. 7.5 - In Exercises 1522, test the claim about the...Ch. 7.5 - Prob. 20ECh. 7.5 - In Exercises 1522, test the claim about the...Ch. 7.5 - In Exercises 1522, test the claim about the...Ch. 7.5 - Hypothesis Testing Using Rejection Regions In...Ch. 7.5 - Hypothesis Testing Using Rejection Regions In...Ch. 7.5 - Hypothesis Testing Using Rejection Regions In...Ch. 7.5 - Hypothesis Testing Using Rejection Regions In...Ch. 7.5 - Hypothesis Testing Using Rejection Regions In...Ch. 7.5 - Hypothesis Testing Using Rejection Regions In...Ch. 7.5 - Hypothesis Testing Using Rejection Regions In...Ch. 7.5 - Hypothesis Testing Using Rejection Regions In...Ch. 7.5 - Prob. 31ECh. 7.5 - Prob. 32ECh. 7.5 - Prob. 33ECh. 7.5 - Prob. 34ECh. 7 - EXERCISES In Exercises 13, assume that you work...Ch. 7 - Describe how your report could make a type I...Ch. 7 - Prob. 3UACh. 7 - In Exercises 16, the statement represents a claim....Ch. 7 - In Exercises 16, the statement represents a claim....Ch. 7 - Prob. 7.1.3RECh. 7 - In Exercises 16, the statement represents a claim....Ch. 7 - Prob. 7.1.5RECh. 7 - In Exercises 16, the statement represents a claim....Ch. 7 - In Exercises 710, (a) state the null and...Ch. 7 - Prob. 7.1.8RECh. 7 - Prob. 7.1.9RECh. 7 - In Exercises 710, (a) state the null and...Ch. 7 - In Exercises 11 and 12, find the P-value for the...Ch. 7 - Prob. 7.2.12RECh. 7 - Prob. 7.2.13RECh. 7 - In Exercises 1316, find the critical value(s) and...Ch. 7 - Prob. 7.2.15RECh. 7 - Prob. 7.2.16RECh. 7 - Prob. 7.2.17RECh. 7 - In Exercises 1720, state whether the standardized...Ch. 7 - In Exercises 1720, state whether the standardized...Ch. 7 - In Exercises 1720, state whether the standardized...Ch. 7 - In Exercises 2124, test the claim about the...Ch. 7 - In Exercises 2124, test the claim about the...Ch. 7 - In Exercises 2124, test the claim about the...Ch. 7 - Prob. 7.2.24RECh. 7 - In Exercises 25 and 26, (a) identify the claim and...Ch. 7 - In Exercises 25 and 26, (a) identify the claim and...Ch. 7 - In Exercises 27 and 28, (a) identify the claim and...Ch. 7 - In Exercises 27 and 28, (a) identify the claim and...Ch. 7 - Prob. 7.3.29RECh. 7 - In Exercises 2934, find the critical value(s) and...Ch. 7 - In Exercises 2934, find the critical value(s) and...Ch. 7 - Prob. 7.3.32RECh. 7 - Prob. 7.3.33RECh. 7 - In Exercises 2934, find the critical value(s) and...Ch. 7 - Prob. 7.3.35RECh. 7 - Prob. 7.3.36RECh. 7 - In Exercises 3540, test the claim about the...Ch. 7 - In Exercises 3540, test the claim about the...Ch. 7 - Prob. 7.3.39RECh. 7 - Prob. 7.3.40RECh. 7 - In Exercises 41 and 42, (a) identify the claim and...Ch. 7 - In Exercises 41 and 42, (a) identify the claim and...Ch. 7 - In Exercises 43 and 44, (a) identify the claim and...Ch. 7 - Prob. 7.3.44RECh. 7 - Prob. 7.4.45RECh. 7 - In Exercises 4548, determine whether a normal...Ch. 7 - Prob. 7.4.47RECh. 7 - In Exercises 4548, determine whether a normal...Ch. 7 - Prob. 7.4.49RECh. 7 - In Exercises 49 and 50, (a) identify the claim and...Ch. 7 - Prob. 7.5.51RECh. 7 - Prob. 7.5.52RECh. 7 - Prob. 7.5.53RECh. 7 - Prob. 7.5.54RECh. 7 - Prob. 7.5.55RECh. 7 - Prob. 7.5.56RECh. 7 - Prob. 7.5.57RECh. 7 - In Exercises 5558, test the claim about the...Ch. 7 - Prob. 7.5.59RECh. 7 - Prob. 7.5.60RECh. 7 - Prob. 7.5.61RECh. 7 - Prob. 7.5.62RECh. 7 - Take this quiz as you would take a quiz in class....Ch. 7 - Prob. 2CQCh. 7 - Take this quiz as you would take a quiz in class....Ch. 7 - Prob. 4CQCh. 7 - Prob. 5CQCh. 7 - Prob. 6CQCh. 7 - Take this test as you would take a test in class....Ch. 7 - Take this test as you would take a test in class....Ch. 7 - Take this test as you would take a test in class....Ch. 7 - Take this test as you would take a test in class....Ch. 7 - Take this quiz as you would take a quiz in class....Ch. 7 - Take this test as you would take a test in class....Ch. 7 - Take this quiz as you would take a quiz in class....Ch. 7 - Supporting a Claim You want your test to support a...Ch. 7 - Testing a Claim You want to claim that students at...Ch. 7 - Testing a Claim You want to claim that your...Ch. 7 - EXERCISES 1. The Minilab display below shows a...Ch. 7 - In Exercise 1, you rejected the claim that p =...Ch. 7 - Describe a hypothesis test for Judge Fords random...
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- A horse trainer teaches horses to jump by using two methods of instruction. Horses being taught by method A have a lead horse that accompanies each jump. Horses being taught by method B have no lead horse. The table shows the number of training sessions required before each horse performed the jumps properly. Method A 25 23 39 29 37 20 Method B 41 21 46 42 24 44 Method A 45 35 27 31 34 49 Method B 26 43 47 32 40 Use a rank-sum test with a5% level of significance to test the claim that there is no difference between the training sessions distributions. If the value of the sample test statistic R, the rank-sum, is 150, calculate the P-value. Round your answer to four decimal places.arrow_forwardA data processing company has a training program for new salespeople. After completing the training program, each trainee is ranked by his or her instructor. After a year of sales, the same class of trainees is again ranked by a company supervisor according to net value of the contracts they have acquired for the company. The results for a random sample of 11 salespeople trained in the last year follow, where x is rank in training class and y is rank in sales after 1 year. Lower ranks mean higher standing in class and higher net sales. Person 1 2 3 4 5 6 x rank 8 11 2 4 5 3 y rank 7 10 1 3 2 4 Person 7 8 9 10 11 x rank 7 9 10 1 6 y rank 8 11 9 6 5 Using a 1% level of significance, test the claim that the relation between x and y is monotone (either increasing or decreasing). Verify that the Spearman rank correlation coefficient . This implies that the P-value lies between 0.002 and 0.01. State…arrow_forwardSand and clay studies were conducted at a site in California. Twelve consecutive depths, each about 15 cm deep, were studied and the following percentages of sand in the soil were recorded. 34.4 27.1 30.8 28.0 32.2 27.6 32.8 25.2 31.4 33.5 24.7 28.4 Converting this sequence of numbers to a sequence of symbols A and B, where A indicates a value above the median and B denotes a value below the median gives ABABABABAABB. Test the sequence for randomness about the median with a 5% level of significance. Verify that the number of runs is 10. What is the upper critical value c2? arrow_forward
- Sand and clay studies were conducted at a site in California. Twelve consecutive depths, each about 15 cm deep, were studied and the following percentages of sand in the soil were recorded. 34.4 27.1 30.8 28.0 32.2 27.6 32.8 25.2 31.4 33.5 24.7 28.4 Converting this sequence of numbers to a sequence of symbols A and B, where A indicates a value above the median and B denotes a value below the median gives ABABABABAABB. Test the sequence for randomness about the median with a 5% level of significance. Verify that the number of runs is 10. What is the upper critical value c2?arrow_forward29% of all college students major in STEM (Science, Technology, Engineering, and Math). If 46 college students are randomly selected, find the probability thata. Exactly 11 of them major in STEM. b. At most 12 of them major in STEM. c. At least 11 of them major in STEM. d. Between 11 and 15 (including 11 and 15) of them major in STEM.arrow_forwardSand and clay studies were conducted at a site in California. Twelve consecutive depths, each about 15 cm deep, were studied and the following percentages of sand in the soil were recorded. 27.3 34.6 30.6 27.8 33.4 31.5 27.3 31.2 32.0 24.7 24.4 28.2 Test this sequence for randomness about the median. Converting this sequence of numbers to a sequence of symbols A and B, where A indicates a value above the median and B denotes a value below the median gives BAABAABAABBB. Verify that the number of runs is 7, the lower critical number is 3, and the upper critical number is 11. Use a 5% level of significance. State the conclusion of the test and interpret your results.arrow_forward
- 29% of all college students major in STEM (Science, Technology, Engineering, and Math). If 46 college students are randomly selected, find the probability thata. Exactly 11 of them major in STEM. b. At most 12 of them major in STEM. c. At least 11 of them major in STEM. d. Between 11 and 15 (including 11 and 15) of them major in STEM.arrow_forwardPlease 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.arrow_forwardProblem 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…arrow_forward
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