Suppose that the market portfolio has mean = 15% and standard deviation = 20%. a.
Question:
Suppose that the market portfolio has mean μ = 15% and standard deviation σ = 20%.
a. If the risk-free rate of interest is 8% calculate the 1-period state prices for an “up” and a “down” state.
b. Show the effect (in a data table) of the risk-free rate on the state prices.
c. Show the effect of the σ on the state prices.
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a The 1period state prices for an up and a down state can be calculate...View the full answer
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