Suppose that the monthly log price of an asset, pt, follows a random walk with drift,...
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Suppose that the monthly log price of an asset, pt, follows a random walk with drift, Pt 0.01 +Pt-1 + €t, 4.4.d. where €₂ N(0,1). The value of p, in a few selected months are given in the following table. Use the definition of continuously compounded return to answer the following questions. date t log Price p Monthly return Quarterly return 12/2021 0 Po = 2.00 ΝΑ ΝΑ 01/2022 1 P₁= 2.15 r₁ = ? ΝΑ 02/2022 2 P2 = 1.85 72 =? ΝΑ 03/2022 04/2022 05/2022 06/2022 5 3 4 6 ? P3= 1.70 73 = ? ra(3)=7 ? ? ? . (4 points) Compute the monthly return 71, 72, and ra. Express the returns in percentages. (4 points) Compute the quarterly return ra(3). Express the returns in percentages. L (4 points) Suppose that we are at the end of Mar 2022 (t = 3), what is the best point forecast for p in Apr 2022? Justify your answer (write down the correct conditional expectation for the prediction and show the steps). (4 points) Suppose that we are at the end of Mar 2022 (t = 3), what is the best point forecast for p in June 2022? Justify your answer (write down the correct conditional expectation for the prediction and show the steps). (4 points) Suppose that we are at the end Mar 2022 (t = 3), what is the best point forecast of the monthly return in June 2022? Justify your answer (write down the correct conditional expectation for the prediction and show the steps). (4 points) Suppose that we are at the end Mar 2022 (t = 3), what is the best point forecast of the quarterly return from Apr, May, and June 2022? Justify your answer. (write down the correct conditional expectation for the prediction and show the steps). Suppose that the monthly log price of an asset, pt, follows a random walk with drift, Pt 0.01 +Pt-1 + €t, 4.4.d. where €₂ N(0,1). The value of p, in a few selected months are given in the following table. Use the definition of continuously compounded return to answer the following questions. date t log Price p Monthly return Quarterly return 12/2021 0 Po = 2.00 ΝΑ ΝΑ 01/2022 1 P₁= 2.15 r₁ = ? ΝΑ 02/2022 2 P2 = 1.85 72 =? ΝΑ 03/2022 04/2022 05/2022 06/2022 5 3 4 6 ? P3= 1.70 73 = ? ra(3)=7 ? ? ? . (4 points) Compute the monthly return 71, 72, and ra. Express the returns in percentages. (4 points) Compute the quarterly return ra(3). Express the returns in percentages. L (4 points) Suppose that we are at the end of Mar 2022 (t = 3), what is the best point forecast for p in Apr 2022? Justify your answer (write down the correct conditional expectation for the prediction and show the steps). (4 points) Suppose that we are at the end of Mar 2022 (t = 3), what is the best point forecast for p in June 2022? Justify your answer (write down the correct conditional expectation for the prediction and show the steps). (4 points) Suppose that we are at the end Mar 2022 (t = 3), what is the best point forecast of the monthly return in June 2022? Justify your answer (write down the correct conditional expectation for the prediction and show the steps). (4 points) Suppose that we are at the end Mar 2022 (t = 3), what is the best point forecast of the quarterly return from Apr, May, and June 2022? Justify your answer. (write down the correct conditional expectation for the prediction and show the steps).
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4 points Compute the monthly return r r and r Express the returns in percentages Monthly Return r Th... View the full answer
Related Book For
Cost Accounting A Managerial Emphasis
ISBN: 978-0136126638
13th Edition
Authors: Charles T. Horngren, Srikant M.Dater, George Foster, Madhav
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