Assume the values in the table below and answer the following: t=0 Price 01 02 03 91 0.39 1 0 0 92 0.23 0 1 0 93 0.35 0 0 1 qb 1 1 1 4 2 5 (a) What is qb? (b) What is q? (c) What is ry? (d) What is TN? q (e) What is TN? (f) What is TN? (g) What is ERNCFC? (h) Using risk neutral discounting what is q"?
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- Think about whether a risk-free asset should earn a risk-premium beyond the risk-free rate. Thinking about that should give you an idea of the beta for a risk-free asset. Or, look again at the CAPM equation: E(Ri)=Rf+βi[E(RM)−Rf] Given this equation, what beta sets the E(R) of the risk free asset equal to the risk-free rate? A) zero B) 0.5 C) 1.0 D) its randomWhich of the following statements is true for compensation of risk? a. Higher the risk, lower is the return b. Lower the risk, higher is the return c. Higher the risk, higher is the return d. Higher the risk, zero is the returnWhat does it mean when you have a risk-free guaranteed rate? Give an example as well as the explanation.
- What impact does each of the followingparameters have on the value of a call option?(4) Risk-free rateConsider the following payoff table: DA: Decision Alternative. Decision Alternative Good Bad Probabilities State of Nature 0.6 DA1 -3.22 DA2 13.80 DA3 3.75 DA4 4.06 6.33 What is the Expected value under perfect Information (EVUPI)? (Please keep 2 decimals for your answer) Your Answer: Answer 0.4 5.21 -5.40 6.00Rm-R is read as: O a. The return offered by the market over and above the risk-free rate O b. Market risk premium- Oc. Excess return on the market C. Od. All options are correct
- Why is the default F risk in a CMBS offering given more attention?For the toolbar , press ALT + F10 ( PC ) or ALT + FN + F10 ( Mac What is the key difference what is the key deference between Value - at - Risk ( VaR ) and volatility ? More specifically, what is the advantage of using VaR as opposed to volatility ?Give typing answer with explanation and conclusion Please could you anwser it with true or false : Q1)Risk-neutral evaluation assumes that the expected return on the underlying asset is the risk-free rate and discounts at the risk-free rate.
- Provide a descriptive formula for each of the following (e.g., Total risk =?+?): a. Total risk= b. Discount rate= c. Adjusted NPV=Give a definition of a "return". Why do we need to incorporate risk into return (discount rate)?R2 With reference to the Black Scholes model, explain the concept of risk neutral valuation. Outline theMonte Carlo valuation procedures. Use the Monte Carlo method to price an option of your own choice,compare the obtained price with the market price, and discuss your results NOTE:answer to the question plz