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

question 10

Multiple Choice

Assume the following: LN(S) and LN(Q) have a correlation coefficient of -0.20,S(0) = 45,S(Q) = 55,r = 0.03,σs = 0.18 σQ = 0.28,and no dividends.Using formula 20.39,what is the price of a claim that pays 1/ $\sqrt{Q S}$
?

• A) $3.02
• B) $2.02
• C) $1.02
• D) $0.02

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Definitions:

PHStat

An Excel add-in that allows users to perform statistical analysis.

Coefficient of Variation

A statistical measure of the dispersion of data points in a data series around the mean, expressed as a percentage.

Index Fund

An investment fund designed to follow certain preset rules so that the fund can track a specified basket of underlying investments.

PHStat

An Excel add-in designed to perform statistical analysis, it provides tools for statistical tests, data analysis, and graphical presentations.