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- Suppose that we can describe the world using two states and that two assets are available, asset K an asset L. We assume the asset’s future prices have the following distribution State Future Price Asset K Future Price Asset L 1 $55 $60 2 $45 $30 The current price of asset K is $50, and the current price of asset L is $50. 1. What are the values of the unit claims (C1 and C2 )?Suppose that we can describe the world using two states and that two assets are available, asset K an asset L. We assume the asset’s future prices have the following distribution State Future Price Asset K Future Price Asset L 1 $55 $60 2 $45 $30 The current price of asset K is $50, and the current price of asset L is $50. What is the risk free rate implied by these assets?Suppose that we can describe the world using two states and that two assets are available, asset X an asset Y. We assume the asset’s future prices have the following distribution State Future Price Asset X Future Price Asset Y 1 $25 $50 2 $20 $40 The values of the unit claims implied by these assets are such that: A. C1 and C2 cannot be determined B. C1=1 and C2=1 C. C1=1, but we cannot determine C2 D. C1=5/4 and C2=5/4
- Use the following table to calculate the expected return from the asset. Return Probability 0.1 0.25 0.2 0.5 0.25 0.25 20.00% 18.75% 17.50% 15.00%Suppose that in a two-period Arrow-Debreu economy with three states, the state probabilities are T₁ = 0.1, 7₂ = 0.55, 73=0.35 and the state prices are 9₁ = 0.2, 9₂=0.5, 93 = 0.8 for states 1, 2, and 3 respectively. Assume that an asset has the state-contingent dividend given in the following table, and the observed price of the asset is 4.1. State-contingent dividend State 1 State 2 State 3 Asset's dividend 5 3 2 According to information above, which one of the following statements regarding arbitrage opportunities is correct? O A. In this case, arbitrage opportunities do not exist. O B. In this case, arbitrage opportunities exist because the asset is over-priced. O c. In this case, arbitrage opportunities exist because the asset is under-priced. O D. Due to insufficient information, it is inconclusive whether arbitrage opportunities exist or not.The probability distributions of expected returns for the assets are shown in the following table: Asset A Prob Return 0.2 -5% 0.4 10% 0.4 15% a) Calculate the expected return for asset A. b) Calculate the standard deviation for asset A.
- A forward contract has an underlying asset which, in Cox-RossRubenstein notation, has S=22,u=1.2 and d=0.9. This forward contract matures in one time step and the return over this time step is R=1.02. Assuming the forward price is calculated rationally, what is the value of the forward at node (1,1)? (Give your answer as a positive number.)Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital asset pricing model to find the required return. (Click on the icon here O in order to copy the contents of the data table below into a spreadsheet.) ne Risk-free Market rate, R return, rm Beta, b nts 4% 0.7 1% The required return for the asset is %. (Round to two decimal places.) eТext edia Librai ial Calculat er Resource Enter your answer in the answer box and then click Check Answer. Check Answer mic Study ules Clear All All parts showing 10: DExercise(14); ools > This course (Introduction to Finance (FIN-101-D02) Distance Spring 2021) is hased on Zutter/Smart Princinles of Managerial Finance Rrief Re 4/13 O Type here to search insertA decision maker has prepared the following payoff table. States of Nature High 95 Alternative Low Buy 10 Rent 65 35 Lease 45 50 Prior Probability 0.8 0.2 Using Baye's Decision Rule, what is the best decision and the expected payoff? (Round your answer to 1 decimal place.) Best decision Payoff
- Suppose the demand functions for two products are q1 = f(p1, p2) and q2 = g(p1, p2) wherep1, p2, q1, and q2 are the prices (in dollars) and quantities for products 1 and 2. Consider thefour partial derivatives∂q1/∂p1,∂q1/∂p2,∂q2/∂p1and ∂q2/∂p2,State the sign of each of these partial derivatives if:(a) the products are complementary goods(b) the products are substitute goods.The expected return for an individual asset is the sum of expected returns in each state of the world multiplied by the probability of each state of the world occurring. Group of answer choices True FalsePlease calculate CAPM of Asset J with the following information: where, kj = required return on asset j, Rf = risk-free rate of return, (6%) bj = beta coefficient for asset j, (1.75) %3D Rm = market return. (10%) The equation for CAPM is kj = Rf + [bj x (Rm - Rf)] kj = Solve for required return on asset j (kj is CAPM) Please be detailed when answering and show all work, thank you.