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2. You buy a special asset at $10 in year 1. In year 2, it is predicted that With 60% chance, its price would increase
2. You buy a special asset at $10 in year 1. In year 2, it is predicted that With 60% chance, its price would increase to $13. With 40% chance, its price would decrease to $9. (a) In this part, we assume in year 2 the price increases to $13. i. (1 point) What is the HPR of this asset, from year 1 to year 2? ii. (1 point) Estimate the real HPR using Fisher's Equation, if the inflation rate from year 1 to year 2 is 1%. (b) Answer this question from year 1 perspective. i. (1 point) Find the expected price of this asset in year 2? ii. (2 points) Find the volatility of the price of this asset in year 2. iii. (3 points) Find the volatility of the HPR of this asset from year 1 to year 2. (e) (2 points) In this part, there is a positive shock to the economy so that the forecasted price is changed to: With 60% chance, its price would increase to $15. With 40% chance, its price would increase to $11. What is the new expected price and volatility of the asset? 2. You buy a special asset at $10 in year 1. In year 2, it is predicted that With 60% chance, its price would increase to $13. With 40% chance, its price would decrease to $9. (a) In this part, we assume in year 2 the price increases to $13. i. (1 point) What is the HPR of this asset, from year 1 to year 2? ii. (1 point) Estimate the real HPR using Fisher's Equation, if the inflation rate from year 1 to year 2 is 1%. (b) Answer this question from year 1 perspective. i. (1 point) Find the expected price of this asset in year 2? ii. (2 points) Find the volatility of the price of this asset in year 2. iii. (3 points) Find the volatility of the HPR of this asset from year 1 to year 2. (e) (2 points) In this part, there is a positive shock to the economy so that the forecasted price is changed to: With 60% chance, its price would increase to $15. With 40% chance, its price would increase to $11. What is the new expected price and volatility of the asset
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