2. (15 pts) Two fair coins are flipped and player I is allowed to view the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
2. (15 pts) Two fair coins are flipped and player I is allowed to view the outcome, player II is not. Player I can fold and pay player II $2, or stay. If player I stays, then player II must try to guess the number of tails showing. If player II guesses correctly, player I must pay him $2 for each tail showing. If player II guesses incorrectly, then he must pay player I $2 for each head showing. (a) Write out the game in extensive form (that is, write out the game tree), labeling the nodes with the position of the game from the point of view of the player who must make the next move, labeling chance moves with their probabilities, and terminal nodes with the payoff to player I. (b) Carefully describe the set of pure strategies available to each player and write down the payoff matrix for the game with the rows and columns labeled by the strategies. (c) Eliminate all strictly dominated strategies, then determine u and ut for the reduced game. Does the reduced game have a solution in pure strategies? If so, what is it? Q4 (Essential to cover) In this problem the term structure of interest rates is flat at 8%. The following bonds and liabilities are given: • Bond A: A zero-coupon bond with a face value of $100 and a time to maturity of 2 years. • Bond B: A zero-coupon bond with a face value of $100 and a time to maturity of 6 years. • Bond C: A zero-coupon bond with a face value of $100 and a time to maturity of 9 years. • Liability X: A one-time liability of $100 maturing in 3 years. • Liability Y: A one-time liability of $100 maturing in 7 years. a. Suppose you have liability X and want to immunize it using bonds A and B. How would you invest in each bond? b. Suppose you have liability X and want to immunize it using bonds B and C. How would you invest in each bond? c. Suppose you have both liabilities X and Y and want to immunize your position using bonds B and C. How would you invest in each bond? 2. (15 pts) Two fair coins are flipped and player I is allowed to view the outcome, player II is not. Player I can fold and pay player II $2, or stay. If player I stays, then player II must try to guess the number of tails showing. If player II guesses correctly, player I must pay him $2 for each tail showing. If player II guesses incorrectly, then he must pay player I $2 for each head showing. (a) Write out the game in extensive form (that is, write out the game tree), labeling the nodes with the position of the game from the point of view of the player who must make the next move, labeling chance moves with their probabilities, and terminal nodes with the payoff to player I. (b) Carefully describe the set of pure strategies available to each player and write down the payoff matrix for the game with the rows and columns labeled by the strategies. (c) Eliminate all strictly dominated strategies, then determine u and ut for the reduced game. Does the reduced game have a solution in pure strategies? If so, what is it? Q4 (Essential to cover) In this problem the term structure of interest rates is flat at 8%. The following bonds and liabilities are given: • Bond A: A zero-coupon bond with a face value of $100 and a time to maturity of 2 years. • Bond B: A zero-coupon bond with a face value of $100 and a time to maturity of 6 years. • Bond C: A zero-coupon bond with a face value of $100 and a time to maturity of 9 years. • Liability X: A one-time liability of $100 maturing in 3 years. • Liability Y: A one-time liability of $100 maturing in 7 years. a. Suppose you have liability X and want to immunize it using bonds A and B. How would you invest in each bond? b. Suppose you have liability X and want to immunize it using bonds B and C. How would you invest in each bond? c. Suppose you have both liabilities X and Y and want to immunize your position using bonds B and C. How would you invest in each bond?
Expert Answer:
Answer rating: 100% (QA)
Lets work through this stepbystep 2 15 pts Two fair coins are flipped and player I is allowed to view the outcome player II is not Player I can fold a... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these finance questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Let A, B be sets. Define: (a) the Cartesian product (A B) (b) the set of relations R between A and B (c) the identity relation A on the set A [3 marks] Suppose S, T are relations between A and B, and...
-
BC Lessee Co. enters a non-cancelable lease agreement with Blackcomb Co. on January 1, 2023, under which Blackcomb Co. leases equipment to BC Lessee Co. Information pertaining to the lease is...
-
Now that you have read the chapter on investment fundamentals, what do you recommend to Shanice and Sarena on the subject regarding: 1. Portfolio diversification for Sarena? 2. Dollar-cost averaging...
-
A BBB-rated corporate bond has a yield to maturity of 13.7%. A U.S. Treasury security has a yield to maturity of 11.7%. These yields are quoted as APRs with semiannual compounding. Both bonds pay...
-
Explain economizer and air-preheater with neat sketch
-
Based on the tons handled in a year, the ports listed below are the 25 busiest ports in the United States (The 2013 World Almanac). a. What is the largest number of tons handled? What is the smallest...
-
2. Fill-in the following using the data below. (42 points) At Haddon, Inc., the office workers are employed for a 40-hour workweek. All workers, except King and Manera, are entitled to overtime pay...
-
What are the 4 uses of mythology that Joseph Campbell explains?
-
A thick-walled cylinder of inertia \(m\) has an outer radius \(R_{\text {outer }}\), an inner radius \(R_{\text {innet }}=R_{\text {outer }} / 2\), and a length \(\ell\) (Figure P11.67). It rotates...
-
Two sound sources emitting at the same wavelength \(\lambda\) are placed a distance \(d_{\mathrm{s}}\) apart and a perpendicular distance \(d_{\mathrm{m}}\) away from a row of microphones. Show that...
-
On a planet the same size as Earth, ocean water has a mass density of \(1000 \mathrm{~kg} / \mathrm{m}^{3}\). A space probe measures the atmospheric pressure at the surface of this planet to be...
-
Vibration in a car can create concentric ripples on the surface of a cup of coffee sitting on the dashboard. What kind of waves are the ripples, and why are they circular?
-
Three equally spaced, coherent sources of water waves of frequency \(f\) are in a line with a distance \(d\) separating each adjacent pair. All three sources have the same amplitude. Nodal lines...
-
Wideband FM is to be generated from narrowband FM using the indirect method of Figure 4.10. For the narrowband FM, fe1 = 125 kHz and Af, = 30 Hz. For the desired wideband FM, f. = 80 MHz and Af = 48...
-
Ask students to outline the reasons why the various elements of culture (social structures and control systems, language and aesthetics, religion and other belief systems, educational systems, etc.)...
-
William sold Section 1245 property for $25,000 in 2012. The property cost $35,000 when it was purchased 5 years ago. The depreciation claimed on the property was $16,000. a. Calculate the adjusted...
-
Mark owns his home and has a $250,000 mortgage related to his purchase of the residence. When his daughter went to college in the fall of 2012, he borrowed $20,000 through a home equity loan on his...
-
Patty Bayan is a single taxpayer living at 543 Space Drive, Houston, TX 77099. Her Social Security number is 466-33-1234. For 2012, Patty has no dependents, and her W-2 from her job at a local...
-
Assuming that the web acts like a spring, what is the spring constant of the web? A. \(0.039 \mathrm{~N} / \mathrm{m}\) B. \(0.39 \mathrm{~N} / \mathrm{m}\) C. \(3.9 \mathrm{~N} / \mathrm{m}\) D....
-
Given what you have calculated for the period of the full oscillation in this model, what is the landing-to-liftoff time for the stretch and rebound of the sprinter's foot? A. \(0.050 \mathrm{~s}\)...
-
If we imagine a full cycle of the oscillation, with the woman bouncing up and down and the tendon providing the restoring force, what will her oscillation period be? A. \(0.10 \mathrm{~s}\) B. \(0.15...
Study smarter with the SolutionInn App