What is the answer to this question? Please give a step by step explanation.
1 answer:
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Answer:
Step-by-step explanation:
An option to buy a stock is priced at $150. If the stock closes above 30 next Thursday, the option will be worth $1000. If it closes below 20, the option will be worth nothing, and if it closes between 20 and 30, the option will be worth $200. A trader thinks there is a 50% chance that the stock will close in the 20-30 range, a 20% chance that it will close above 30, and a 30% chance that it will fall below 20.
a) Let X represent the price of the option
<h3><u> x P(X=x) </u></h3>
$1000 20/100 = 0.2
$200 50/100 = 0.5
$0 30/100 = 0.3
b) Expected option price
Therefore expected gain = $300 - $150 = $150
c) The trader should buy the stock. Since there is an positive expected gain($150) in trading that stock option.
Answer:
Step-by-step explanation:
x + 3 /
-()
-
-()
-()
8x +22
-(8x + 24)
Answer:
- One proportion to solve is 8/18 = x/8
- Exact answer as a fraction: x = 32/9
- Approximate answer in decimal form: x = 3.556
In reality, the 5's go on forever, but we have to round off somewhere.
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Explanation:
Break up the triangles as your teacher recommends. See the diagram below as to what I mean.
The smaller triangle has A = 8 as the horizontal side, and B = x as the vertical side
The larger triangle has C = 10+8 = 18 as the horizontal aside, and D = 8 as the vertical side.
We can form the proportion A/C = B/D.
A/C connects the horizontal sides (small/large) while B/D has the vertical sides tied together. The order of division is the same small over large. You could do large over small, but make sure you keep both sides consistent.
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Let's solve for x
A/C = B/D
8/18 = x/8
8*8 = 18*x .... cross multiply
64 = 18x
18x = 64
x = 64/18 .... divide both sides by 18
x = 32/9 exactly in fraction form
x = 3.556 approximately in decimal form
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Another proportion you can solve is A/B = C/D and you should get the same x value. It's the same as A/C = B/D because the B and C swap places. There are many other approaches you could take using different proportions.
