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Tju [1.3M]
3 years ago
6

Assume the stock return for the next month is a random variable that follows a Normal distribution with the mean 1.5% and the st

andard deviation 5%, which is the true probability. The interest rate is 0.25% for the next month. Suppose you are the owner of a big investment bank, and one of your VIP clients wants to buy a customized derivative from you. The payoff of such derivative is $4mil if the stock return for the next month is larger than 0.25%, and $1mil if the stock return for the next month is smaller than 0.25%. Assume the probability that the stock return turns out exactly 0.25% is zero. Compute the price of this customized derivative. Your client will pay you extra fees in addition to the price of this derivative. This computation is extremely important for your business. If your valuation is too high, the client will buy the same derivative from other banks, and you lose the fees. If your valuation is too low, you are selling a product with an expected loss.
Business
1 answer:
EleoNora [17]3 years ago
8 0

Answer:

Check the explanation

Explanation:

The price of the original asset is the same amount as the expected future price which are being discounted at the risk-free rate.

Price of Customized Derivative= Probability of return>0.2%*Pay off+ Probability of Return<0.2%*Payoff/(1+r)^T

= 0.5*$4000000+0.5*$1000000/(1+0.002)^1

=2000000+500000/1.002

=2000000+499001.99

$2499001.99

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kati45 [8]

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Consumer Bill of Rights

Explanation:

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3 years ago
A reporter appears on television and reports that a collegiate athlete is currently using steroids. The reporter has a sincere b
zhannawk [14.2K]

Answer:

The answer is D, the reporter is liable for a claim of libel

Explanation:

First of, we need to understand that libel in it self refers to a false statement or report published against an individual and of which the report has a very high tendency of tarnishing the individuals image. In order words, it can also be refereed to as the defamation of character where the victim in this case is refereed to as the character.

So,  referring back to the question. As a reporter, it is assumed that proper diligence has been done in respect to investigation or investigative journalism as some like to call it before going before the public to declare such a defaming statement and in such a case where such sequentially, the statement comes to be a false statement, the reporter and in some cases the firm at large is liable for a claim of libel.

So as related to the question asked, the answer is D.

6 0
3 years ago
The federal reserve's goal in managing the money supply is to ensure that money retains its value.
sattari [20]
The answer is B: False The Federal's Reserve goal is t<span>o provide the nation with a safer, more flexible, and more stable monetary and financial </span>system<span>.</span>
6 0
3 years ago
Grettzee, a musical instruments manufacturing company, imports high-quality maple wood from Resumbro, a South Asian country wher
kirill [66]

Answer:

Access to factors of production

Explanation:

Factors of production refers to all the resources that are needed in order to create goods or services. Generally, factors of production are divided into 4 category:

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- Labor

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The woods that needed as raw materials from the text above is included as a part of 'land' . Since Resumbro have closer access to this resources, it will be cheaper for them to produce that materials, and it will be cheaper for Grettzee to buy it from another place .

6 0
3 years ago
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7nadin3 [17]

Answer:

C. increase if beef is a normal​ good; decrease if rice is an inferior good.

Explanation:

As the average income in China continues to​ increase, we would expect the demand for beef to increase if beef is a normal​ good and the demand for rice to decrease if rice is an inferior good.

Normal goods are goods whose demand increase with the increase in income of consumer, however, demand decreases with the decrease in the income of consumer as we know Income is a key factor, which affect the demand of goods and services. Examples of Normal goods are Beef, Pizza, etc.

Inferior goods are goods whoes demand decreases with the increase in income of consumer, however, demand increases with the decrease in the income of consumer. Examples of Inferior goods are Cereal, Rice, non branded noodles etc.

7 0
4 years ago
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