Question: Assume that the market index is 100. Show that if the expected return on the market is 15%, the dividend yield is zero, and volatility

Assume that the market index is 100. Show that if the on the market is 15%, the yield is zero, and volatility is 20%, then the probability of the index falling below 95 over a 1-day horizon is approximately 0.0000004. Discuss.

Step by Step Solution

★★★★★

3.40 Rating (159 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

By log normality with t 1365 this is N 49207 4 10 7 Thi... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

727-B-B-F-M (4271).docx

120 KBs Word File

Students Have Also Explored These Related Banking Questions!

If the expected return on the market is 10 percent and the risk-free rate is 4 percent, what is the expected return for a stock with a beta equal to 1.5? What is the market risk premium for the set...

Assume that the market for rental cars for business purposes is perfectly competitive, with the demand for this capital input given by K = 1,500 25v and the supply given by K = 75v 500 Where K...

Assume that the market contains one single risky asset with price process governed by the Black-Scholes model such that dSt = Stdt + StdBt with the interest rater is constant. There is a forward...

8. Assume that the market index is 100. Show that if the expected return on the market is 15%, the dividend yield is zero, and volatility is 20%, then the probability of the index falling below 95...

Assume that the market index is 100. Show that if the expected return on the market is 15%, the dividend yield is zero, and volatility is 20%, the probability of the index falling below 95 over a...

Assume that the market index is 100. Show that if the expected return on the market is 15%, the dividend yield is zero, and volatility is 20%, then the probability of the index falling below 95 over...

c. Construct a scatter diagram graph that shows Goodman's and Landry' returns on the vertical axis and the Market lndex's returns on the horizontal axis. It is easiest to make scatter diagrams with a...

On a stand-alone basis which corporation is the least risky? Construct a scatter diagram graph that shows Goodmans and Landry returns on the vertical axis and the Market Indexs returns on the...

47 c. Construct a scatter diagram graph that shows Goodman's and Landry' returns on the vertical axis and 48 the Market Index's returns on the horizontal axis. 49 50 It is easiest to make scatter...

a. Construct a scatter diagram graph that shows Batas and Renatas returns on the vertical axis and the market indexs returns on the horizontal axis. b. Estimate Batas and Renatas betas by running...

A firm is planning a business expansion and currently has a capital structure consisting of common stock of 5 million (200,000 shares) in debt of 10 million with a 4% coupon rate. The firm has two...

Describe link analysis and discuss its usefulness to a forensic accountant.

Explain the discount rate that the lessee should use to compute its lease liability.

Jot down several advantages to integrating mobile advertising into the advertising media plan.

18. A mine costing $$1000$ will produce 1 ounce of gold per year forever at a marginal extraction cost of $$250$, with production commencing 1 year after the mine opens. Gold volatility is zero....

19. Repeat Problems 17 and 18 assuming that the annual volatility of gold is 20%.

20. Repeat Problem 18 assuming that the volatility of gold is 20% and that once opened, the mine can be costlessly shut down forever. What is the value of the mine? What is the price at which the...

SPS Programs Pyramid Lake is on the Palute Indian Reservation In Nevada. The lake is famous for cutthroat trout. Suppose a friend tells you that the average length of trout caught in Pyramid Lake Is...

The. Sisyphean Company has a bond outstanding with a foce value of $5,000 that reaches maturity in 10 ynans. The bond contificate indicates that the stated coupon raie for this bond is 8.4% and that...

Suppose an analyst arrives at a value of $ 3 0 per share for AT&T stock using a Gordon growth model where the terminal growth rate used is based on the company's sustainable growth rate. One of the...