Question $16$

$2\mathrm{.}5$ pts

Suppose that you hold a piece of land in the City of London that you may want to sell in one year. As a U$.$S$.$ resident, we are concerned with the dollar value of the land. Assume that, if the British economy booms in the future, the land will be worth $5,500$ and one British pound will be worth $$1\mathrm{.}65.$ If the British economy slows down, on the other hand, the land will be worth less, i$.$e$.,4,300,$ and the pound will be weaker, i$.$e$.,$ $$\frac{1\mathrm{.}55}{}.$ You feel that the British economy will experience a boom with a $55\%$ probability and a slow$-$down with a $45\%$ probability. Given the above facts, please estimate your exposure $b$ to the exchange risk.

$-24,100$

$-15,500$

$15,500$

$24,100$

Question $17$

$2\mathrm{.}5$ pts

Same facts as above: compute the variance of the dollar value of your property that is attributable to the exchange rate uncertainty $($that is$,$ please compute the value of $B^2$Var$(S).$

$$7,990\mathrm{.}50$

$$1,534,464\mathrm{.}73$

$$1,437,504\mathrm{.}75$

$$24,100\mathrm{.}00$