Introductory Statistics (2nd Edition)
2nd Edition
ISBN: 9780321978271
Author: Robert Gould, Colleen N. Ryan
Publisher: PEARSON
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Textbook Question
Chapter 8, Problem 2SE
Choose one of the answers in each case. In statistical inference, measurements are made on a
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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…
What is the standard scores associated to the left of z is 0.1446
Chapter 8 Solutions
Introductory Statistics (2nd Edition)
Ch. 8 - Choose one of the answers given. The null...Ch. 8 - Choose one of the answers in each case. In...Ch. 8 - Boot Camp (Example 1) Suppose an experiment is...Ch. 8 - Scrubs A research hospital tries a new antibiotic...Ch. 8 - Magic A magician claims he can cause a coin to...Ch. 8 - Water A friend is tested to see whether he can...Ch. 8 - Heart Attack Prevention A new drug is being tested...Ch. 8 - Stroke Survival Rate The proportion of people who...Ch. 8 - Coin Flips (Example 2) A coin is flipped 30 times...Ch. 8 - Die Rolls You roll a six-sided die 30 times and...
Ch. 8 - Prob. 11SECh. 8 - Multiple-Choice Test A teacher is giving an exam...Ch. 8 - Dropouts According to Time magazine (June 11,...Ch. 8 - Prob. 14SECh. 8 - Boot Camp, Again (Example 4) Refer to Exercise...Ch. 8 - Prob. 16SECh. 8 - Coke versus Pepsi (Example 5) Suppose you are...Ch. 8 - St. Louis Jury Pool St. Louis County is 24 African...Ch. 8 - Coke vs. Pepsi (Example 6) Suppose you are testing...Ch. 8 - Prob. 20SECh. 8 - Cheating? A professor creates two versions of a 20...Ch. 8 - Guessing A 20-question multiple choice quiz has...Ch. 8 - Dreaming (Example 7) A 2003 study of dreaming...Ch. 8 - Age Discrimination About 30 of the population in...Ch. 8 - Marriage Obsolete (Example 8) When asked whether...Ch. 8 - Prob. 26SECh. 8 - Coke versus Pepsi A taste test is done to see...Ch. 8 - Seat Belts Suppose we are testing people to see...Ch. 8 - Sleep Walking (Example 9) According to Time...Ch. 8 - Prob. 30SECh. 8 - Sleep Walking, Again (Example 10) According to...Ch. 8 - Women CEOs, Again the percentage of female CEOs in...Ch. 8 - p-Values For each graph, indicate whether the...Ch. 8 - p-Values For each graph, state whether the shaded...Ch. 8 - Gun Control Historically, the percentage of U.S....Ch. 8 - Death Penalty A Pew Poll in November 2011 showed...Ch. 8 - Prob. 37SECh. 8 - Plane Crashes According to one source, 50 of plane...Ch. 8 - Mercury in Freshwater Fish Some experts believe...Ch. 8 - Prob. 40SECh. 8 - Morse’s Proportion of ts Samuel Morse determined...Ch. 8 - Morse’s Proportion of as Samuel Morse determined...Ch. 8 - p-Values (Example 11) A researcher carried out a...Ch. 8 - Coin Flips A test is conducted in which a coin is...Ch. 8 - Errors with Pennies (Example 12) Suppose you are...Ch. 8 - Errors with Toast Suppose you are testing someone...Ch. 8 - Blackstone on Errors in Trials Sir William...Ch. 8 - Alpha By establishing a small value for the...Ch. 8 - Flaws (Example 13) A person spinning a 1962 penny...Ch. 8 - Flaws The null hypothesis on true/false tests is...Ch. 8 - Which Method? A proponent of a new proposition on...Ch. 8 - Which Method? A proponent of a new proposition on...Ch. 8 - Effectiveness of Financial Incentives A...Ch. 8 - Is it acceptable practice to look at your research...Ch. 8 - If we reject the null hypothesis, can we claim to...Ch. 8 - If we do not reject the null hypothesis, is it...Ch. 8 - When a person stands trial for murder, the jury is...Ch. 8 - When, in a criminal court, a defendant is found...Ch. 8 - Arthritis A magazine advertisement claims that...Ch. 8 - No-Carb Diet A weight-loss diet claims that it...Ch. 8 - When comparing two sample proportions with a...Ch. 8 - When comparing two sample proportions with a...Ch. 8 - Prob. 63SECh. 8 - Prob. 64SECh. 8 - Prob. 65SECh. 8 - Prob. 66SECh. 8 - Prob. 67SECh. 8 - Prob. 68SECh. 8 - Smiling and Gender (Example 15) In a 1997 study,...Ch. 8 - Prob. 70SECh. 8 - Prob. 71CRECh. 8 - Prob. 72CRECh. 8 - Choosing a Test and Giving the Hypotheses Give the...Ch. 8 - Choosing a Test and Naming the Population(s) In...Ch. 8 - Prob. 75CRECh. 8 - Butter Taste Test A man is tested to determine...Ch. 8 - Biased Coin? A study is done to see whether a coin...Ch. 8 - Biased Coin? A study is done to see whether a coin...Ch. 8 - Prob. 79CRECh. 8 - Coin Flips Suppose you tested 50 coins by flipping...Ch. 8 - Prob. 81CRECh. 8 - Prob. 82CRECh. 8 - Prob. 83CRECh. 8 - Weight Loss in Men Many polls have asked people...Ch. 8 - Prob. 85CRECh. 8 - Prob. 86CRECh. 8 - Prob. 87CRECh. 8 - Prob. 88CRECh. 8 - Wording of Polls A poll in California (done by the...Ch. 8 - Prob. 90CRECh. 8 - Three-Strikes Law California’s controversial...Ch. 8 - Prob. 92CRECh. 8 - Prob. 93CRECh. 8 - Prob. 94CRECh. 8 - A friend claims he can predict the suit of a card...Ch. 8 - A friend claims he can predict how a six-sided die...Ch. 8 - Votes for Independents Judging on the basis of...Ch. 8 - Votes for Independents Refer to Exercise 8.97....Ch. 8 - Texting While Driving The mother of a teenager has...Ch. 8 - True/False Test A teacher giving a true/false test...Ch. 8 - ESP Suppose a friend says he can predict whether a...Ch. 8 - ESP Again Suppose a friend says he can predict...Ch. 8 - Does Hand Washing Save Lives? In the mid-1800s,...Ch. 8 - Prob. 104CRECh. 8 - Guessing on a True/False Test A true/false test...Ch. 8 - Guessing on a Multiple-Choice Test A...
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- Note: The purpose of this problem below is to use computational techniques (Excelspreadsheet, Matlab, R, Python, etc.) and code the dynamic programming ideas seen inclass. Please provide the numerical answer to the questions as well as a sample of yourwork (spreadsheet, code file, etc.).We consider an N-period binomial model with the following properties: N = 60, thecurrent stock price is S0 = 1000; on each period, the stock price increases by 0.5% whenit moves up and decreases by 0.3% when it moves down. The annual interest rate on themoney market is 5%. (Notice that this model is a CRR model, which means that thebinomial tree is recombining.)(a) Find the price at time t0 = 0 of a (European) call option with strike price K = 1040and maturity T = 1 year.(b) Find the price at time t0 = 0 of a (European) put option with strike price K = 1040and maturity T = 1 year.(c) We consider now, that you are at time t5 (i.e. after 5 periods, which represents 1month later). Assume that the stock…arrow_forwardshow work in paperarrow_forwardshow all work (...or what you entered into your calculator...)arrow_forward
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