Assume the Following: LN(S)and LN(Q)have a Correlation Coefficient of -0 $\sqrt{S}$

question 3

Multiple Choice

Assume the following: LN(S) and LN(Q) have a correlation coefficient of -0.65,S(0) = 55,Q(0) = 60,r = 0.04,σs = 0.22 σQ = 0.15,and dividends = 0.Using formula 20.39,what is the price of a claim that pays Q/ $\sqrt{S}$ ?

• A) $8.16
• B) $9.16
• C) $10.16
• D) $11.16

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