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Homework 1 Answers:
Step 1:
Assume r ~ (
2
,
σ
μ
)
Step 2:
Use the stock prices to calculate the return rate for each of the stock. Calculate
2
,
from the
weighted average of the return rates. (See Excel for details)
=
0.081%
=
1.159%
Step 3:
Standardize the return rate to standard normal distribution:
%
159
.
1
%
081
.
0

=

=
r
r
Z
~N(0,1)
Step 4:
From the standard normal distribution table,
%
3
%)
1
.
2
(
%
3
%)
081
.
0
%
159
.
1
*
88
.
1
(
%
3
%)
159
.
1
*
88
.
1
%
081
.
0
(
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This note was uploaded on 04/16/2008 for the course ECN 3620 taught by Professor Gai during the Spring '08 term at Babson College.
 Spring '08
 gai
 Econometrics

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