Question 9 (10) a) Assume an investor has an initial wealth of R100. What is the...
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Question 9 (10) a) Assume an investor has an initial wealth of R100. What is the probability that will make this investor indifferent for each lottery? L2: (130, 90 ?) L3: (105, 85, ?) b) Which stocks follow a Martingales process? If not, which process are they following? (5) Why? Probability P(Up)-0.50 P(Down)=0.50 Stock at time to Stock goes up at time t Stock goes down t 8 9 6 10 15 9 120 120 115 (5) Question 9 (10) a) Assume an investor has an initial wealth of R100. What is the probability that will make this investor indifferent for each lottery? L2: (130, 90 ?) L3: (105, 85, ?) b) Which stocks follow a Martingales process? If not, which process are they following? (5) Why? Probability P(Up)-0.50 P(Down)=0.50 Stock at time to Stock goes up at time t Stock goes down t 8 9 6 10 15 9 120 120 115 (5)
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