A stock is currently trading at $56 and we assume a three-period binomial tree modelwhere each period the stock can either increase by 30%, or fall by 18%. Each step inthe tree is 4 months. The interest rate is 1.1% per year (continuous compounding). Inthis model, what is the risk-neutral probability that the stock price will go up twiceand drop once over the three periods? [Provide your answer as a percentage roundedto two decimals, i.e. 40.25 for 0.4025-40.25%]

ProbabilityProbability is the branch of mathematics concerning numerical descriptions of how likely…

Answered: A stock is currently trading at $56 and…

Algebra & Trigonometry with Analytic Geometry

13th Edition

ISBN:9781133382119

Author:Swokowski

Publisher:Swokowski

Chapter10: Sequences, Series, And Probability

Section: Chapter Questions

Problem 35T

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q1- Collina's Italian Cafe in Houston, Texas, advertises that carryout orders take about 25 minutes. Assume that the time required for a carryout order to be ready for customer pickup has an exponential distribution with a mean of 25 minutes. A particular customer lives 15 minutes from Collina's Italian Cafe. If the customer places a telephone order at 5:20PM., what is the probability that the customer can drive to the cafe, pick up the order, and return home by 6:00PM?
online airline reservation processing system handles randomly-arriving reservations. Requestsarrive at a rate of 300 per hour and take about 8 seconds to process (depending upon complexity).Assume ample buffering and exponential arrival and processing times.A. What is the average number of requests in the system? Average wait time in the queue?B. What is the probability that there are less than 10 requests in the system?C. If 30% of the servers in the system go offline for service will the system remain stable? Whatis the average number of requests in the system then, or will they grow unboundedly?D. The airline adds a smaller reservation system to reduce delays. This system handles one third(33.33%) of incoming requests and takes about 12 seconds to process one request. If incomingrequests are separately buffered for each system, what is the average number of requests in thenew system and the average wait time in the new system?E. In Part D above, what is the average wait time across…
A consumer is contemplating the purchase of a new smart phone. A consumer magazine reports data on the major brands.Brand A has lifetime (TA),which is exponentially distributed with m=0.2;and Brand B has lifetime (TB),which is exponentially distributed with m = 0.1 (The unit of time is one year) a. Find the expected lifetimes for A and B. If a consumer must choose between the two on the basis of maximizing expected lifetime, which on should be chosed? b.Find the probability that A's lifetime exceeds its expected value.Do the same for B. What do you conclude? c.Suppose one consumer purchases Brand A, and another purchases Brand B.Find the mean and variance of 1) the average lifetime of the two devices and 2) the difference between their lifetimes.(Hint:You must use the rules about means and variances of linear transformations discussed in Chapter 7. Making Hard Decision with decisiontools,3rd edition)

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