EBK MANAGERIAL ECONOMICS
4th Edition
ISBN: 9781305483170
Author: FROEB
Publisher: YUZU
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Chapter 8, Problem 8.2IP
(a)
To determine
Two separate explanations for the
(b)
To determine
Explain the piece of information to decide the better explanation.
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Answer these questions using replication or the risk neutral probability. Both methods will
produce the same answer.
Show your work to receive credit.
6. What is the premium of a call with a higher strike.
Show your work to receive credit; do not round intermediate calculations.
S0 = $100, u=2, d=0.5, r=10%, strike=$150
Answer these questions using replication or the risk neutral probability. Both methods will produce the same answer.
Problem 2:
At a raffle, 2000 tickets are sold at $5 each for five prizes of $2000, $1000, $500, $250, and $100. You
buy one ticket. What is the expected value of your gain?
1. Find the gain for each prize.
2. Write a probability distribution for the possible gains.
3. Find the expected value.
4. Interpret the results.
Chapter 8 Solutions
EBK MANAGERIAL ECONOMICS
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