final_exam_solutions

# final_exam_solutions - Econ 252 Final Exam Answers Spring...

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Econ 252 Final Exam Answers Spring 2007, R. Shiller Part I. Answer any seven of the following ten questions, 4 minutes each. 1. Use binomial distribution to calculate probability with p=.5. p = .5^10+10*.5^9*.5 = 11*.5^10 = .0107642. The probability is low, but it is not so low that these things shouldn’t happen regularly. There are many ways to pick the time interval over which one looks, on in a hundred should happen several times a year. 2. PDV=(\$10million/(.06))*(1-1.06^-25)=\$127 .834million. (standard annuity formula). Interest on this is \$7.670 million, or \$7,670 per student per year, so tuition should be \$50,000-\$7670=\$42,330 3. Both are out of the money, he hopes for volatility since he has a “long straddle” which benefits him only if price moves a lot, doesn’t matter which way. He would hope for a quiet market if he wrote an out of the money put and an out of the money call, in which case he gets to keep the premium on both if little happens to price. 4. Using put-call parity, Mary’s portfolio is worth the pdv of the exercise price, or 100*\$100/1.05=\$9523.81 (options lecture) 5. =\$62*1.1+10=\$78.20. Selling price in a year has to cover both storage and interest. 6. =(.48/.52)^10= 0.449 (Lecture 17 slide 40) 7. =\$500,000/(1/.005-(1/.005)*1/1.005^300)=\$3221.51 (Lecture 12 slide 16) 8. mean = .15, standard deviation=(.5*.1^2+.5*.6^2+2*.25*.1*.6)^.5=46.37% 9. Lecture 9 slide 7. Discount =.01*60/360=.01, yield = (discount/(1- discount))*365/60=6.1448% 10. pdv=(x/(r-g))*(1-1/(1+r)^T))

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## This note was uploaded on 02/08/2012 for the course ECON 252 taught by Professor Robertshiller during the Spring '08 term at Yale.

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final_exam_solutions - Econ 252 Final Exam Answers Spring...

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