Chapter11 - Investment Science Chapter 11 Solutions to...

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Investment Science Chapter 11 Solutions to Suggested Problems Dr. James A. Tzitzouris < jimt2@ams.jhu.edu > 11.1 We are given that so that and the binomial lattice is given by 11.2 Each movement in k corresponds to a month, and each movement in K corresponds to a year. Let k K denote the first month of year K . Then So S 0 = $ 100, = 0.12, = 0.20, t = 0.25, u = e   t = 1.105, d = 1 u = 0.905, p = 1 2 1 2 t = 0.65, 100 110.50 122.10 134.90 149.10 90.50 100 110.50 100 122.10 81.90 67.10 90.50 74.10 81.90 Probability = 17.9% Probability = 38.4% Probability = 31.1% Probability = 11.1% Probability = 1.5% W K = i = 0 11 w k K 1 i E [ W K ] = E [ i = 0 11 w k K 1 i ] = 12 , Var [ i = 0 11 w k K 1 i 2 ] = 12
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11.3 (a) Proof: For n = 2, which implies That is, so (b) Since r 1 =50% and r 2 =-20% , the arithmetic mean is and the geometric mean is (c) The arithmetic mean rate of return essentially assigns a return based on simple
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This note was uploaded on 04/02/2010 for the course EE 204 taught by Professor Won during the Spring '10 term at 카이스트, 한국과학기술원.

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Chapter11 - Investment Science Chapter 11 Solutions to...

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