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# Consider a model of random interest rates R; between year i and i+1. The R, are i.i.d. random variables such that 1+ R; is

## Consider a model of random interest rates R; between year i and i+1. The R, are i.i.d. random variables such that 1+ R; is LogNormal (0.03,0.0010) distributed. Suppose you deposit an amount of 4000 at time 0. (a)ma Determine the expectation value of R, . State your result with 4 significant digits. Do not write the percentage sign. For example, if your answer is 4.123% write 4.123. Answer: (b) Determine the expectation value of the amount of money on your account after 10 years. Do not write the sign. State your result to 6 significant digits. Answer: (c) Answer: Determine the probability that the money accumulated at time i = 10 is more than 7500. State your answer to four significant digits.

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a To determine the expectation value of R we use the formula for the expected value of a lognormal d...### Get Instant Access to Expert-Tailored Solutions

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