Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 22, Problem 5CRCT
Probabilities [LO3] Suppose you are flipping a fair coin in a coin-flipping contest and have flipped eight heads in a row. What is the probability of flipping a head on your next coin flip? Suppose you flipped a head on your ninth toss. What is the probability of flipping a head on your tenth toss?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A game of chance offers the following odds and payoffs. Each play of the game costs $200, so the net profit per play is the payoff less
$200.
Probability
0.30
0.60
0.10
Payoff
$400
300
0
Net Profit
$200
100
-200
a-1. What is the expected cash payoff?
Note: Round your answer to the nearest whole dollar amount.
a-2. What is the expected rate of return?
Note: Enter your answer as a percent rounded to the nearest whole number.
b-1. What is the variance of the expected returns?
Note: In the calculation, use the percentage values, not the decimal values for the rates of return. Do not round intermediate
calculations. Round your answer to the nearest whole number.
b-2. What is the standard deviation of the expected returns?
Note: Enter your answer as a percent rounded to 2 decimal places.
a-1. Expected cash payoff
a-2. Expected rate of return
b-1. Variance
b-2. Standard deviation
$
300
50 %
%
QUESTION 11
The discounting of the future is assumed to be exponential. What does behavioral finance have to say about this assumption? What is hyperbolic discounting? Explain
II. PROBLEMS
Suppose that the economy has the following money supply and demand equations:
Money Supply: M = 8000
Money Demand: M= 10,000 – 40,000r
where money is in billions of dollars and interest rates, r, is written as a decimal
(e.g., an interest rate of 10% would be written as .1 in the equation).
A. Determine the equilibrium interest rate and quantity of money.
B. What will happen in the money market if the interest rate is currently 10%?
What is the amount of excess supply of or excess demand for money?
C. Show in graph that at this interest rate (10%) there is disequilibrium in the
money market.
2. Assume that a particular bank has excess reserves of Php800,000 and checkable
deposits of Php1,500,000. If the reserve ratio is 20%, what is the size of the bank's
actual reserves?
3. Suppose that GRAB Bank is a newly created bank in your hometown. Consider the
following transactions:
Owners of the bank sold shares of stocks to the public (which includes owners'
equity) amounting to…
Chapter 22 Solutions
Fundamentals of Corporate Finance
Ch. 22.2 - Prob. 22.2ACQCh. 22.2 - Prob. 22.2BCQCh. 22.2 - Prob. 22.2CCQCh. 22.3 - What is frame dependence? How is it likely to be...Ch. 22.3 - Prob. 22.3BCQCh. 22.4 - What is the affect heuristic? How is it likely to...Ch. 22.4 - Prob. 22.4BCQCh. 22.4 - Prob. 22.4CCQCh. 22.5 - Prob. 22.5ACQCh. 22.5 - Prob. 22.5BCQ
Ch. 22.6 - Prob. 22.6ACQCh. 22.6 - Prob. 22.6BCQCh. 22 - Cognitive errors are best explained as errors in...Ch. 22 - Prob. 22.2CTFCh. 22 - Prob. 22.5CTFCh. 22 - Prob. 1CRCTCh. 22 - Prob. 2CRCTCh. 22 - Frame Dependence [LO2] How can frame dependence...Ch. 22 - Prob. 4CRCTCh. 22 - Probabilities [LO3] Suppose you are flipping a...Ch. 22 - Prob. 6CRCTCh. 22 - Prob. 7CRCTCh. 22 - Prob. 8CRCTCh. 22 - Prob. 9CRCTCh. 22 - Prob. 10CRCTCh. 22 - Your 401 (k) Account at SS Air You have been at...Ch. 22 - Your 401 (k) Account at SS Air You have been at...Ch. 22 - Prob. 3M
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Consider the random experiment of rolling a pair of dice. Suppose that we are interested in the sum of the face values showing on the dice. a. How many outcomes are possible? b. List the outcomes. c. What is the probability of obtaining a value of 7? d. What is the probability of obtaining a value of 9 or greater?arrow_forwardConsider the following payoff table: DA: Decision Alternative. Decision Alternative Good Bad Probabilities State of Nature 0.6 DA1 -3.22 DA2 13.80 DA3 3.75 DA4 4.06 6.33 What is the Expected value under perfect Information (EVUPI)? (Please keep 2 decimals for your answer) Your Answer: Answer 0.4 5.21 -5.40 6.00arrow_forwardLet's say you make a bet on a coin toss, heads 5.938, tails 6.942. Disregarding the discount factor (you don't need to take the present value), what is the value (expected return) of this bet?arrow_forward
- Will the stock market Crash again? yes or no? why?arrow_forwardAn investor is consider four different opportunities, A, B, C, or D. The payoff for each opportunity will depend on the economic conditions, represented in the payoff table below. Economic Condition Investment Poor Average Good Excellent (S1) (S2) (S3) (S4) A 50 75 20 30 B 80 15 40 50 C -100 300 -50 10 D 25 25 25 25 What decision would be made under minimax regret?arrow_forwardQ2 Following are four economic states, their likelihoods, and the potential returns: Economic State Probability Return Fast growth 0.30 60 % Slow growth 0.50 13 Recession 0.15 –15 Depression 0.05 -45 Compute the expected return and standard deviation. (Round your answers to 2 decimal places.) EXPECTED RETURN % STANDARD DEVIATION. %arrow_forward
- Moving to another question will save this response. Question 1 4 Danica Tribbiano believes expected inflation is 2.25% and the real rate of return is 2.75%. Based on this information, she estimates the risk-free rate of return is: OA. 5.00%. B. 0.50%. O C. 2.25%. A Moving to another question will save this response. A+ F3 $ F5 % P F6 F7 & M D F8 * 8 F9 F10 :- F11 O + F12arrow_forwardMultinational Finance & investment Q2 d) Use a numerical example to illustrate that when there is a large change in the interest rate, the approximation error by using the duration and convexity rule is smaller than the approximation error by using the duration rule only.arrow_forwardWhat does WRF = -0.50 mean? Group of answer choices The investor can borrow money at the risk-free rate. The investor can lend money at the current market rate. The investor can borrow money at the current market rate. The investor can borrow money at the prime rate of interest. The investor can lend money at the prime rate of interest.arrow_forward
- Q6 Compute the expected return given these three economic states, their likelihoods, and the potential returns: (Round your answer to 1 decimal place.) Economic State Probability Return Fast growth 0.3 40 % Slow growth 0.4 10 Recession 0.3 –25 EXPECTED RETURN %arrow_forwardSuppose we are interested in bidding on a piece of land and we know one other bidder is interested.1 The seller announced that the highest bid in excess of 10,000 will be accepted. Assume that the competitors bid x is a random variable that is uniformly distributed between 10,000 and 15,000. a. Suppose you bid 12,000. What is the probability that your bid will be accepted? b. Suppose you bid 14,000. What is the probability that your bid will be accepted? c. What amount should you bid to maximize the probability that you get the property? d. Suppose you know someone who is willing to pay you 16,000 for the property. Would you consider bidding less than the amount in part (c)? Why or why not?arrow_forwardProblem 2: Monetary Theory [13 Points] Suppose that an economy begins in long-run equilibrium. Suppose also that there is an increase in Aggregate Demand (AD) as a result of an increase in Net Exports (NX). 9. Does the economy enter an inflationary gap or a recessionary gap? Explain your answer using an AD-AS figure. [2 points] 10. What happen to Money Demand as a result of this shift in the AD-AS model. Does this create a surplus or shortage in the Money Market? Does this create a surplus or a shortage in the bond market? Explain your answer using a MD-MS figure. [3 points] 11. If the Central Bank wants to prevent further inflation, what action could it take? What does it need to do with the Money Supply (MS) to maintain equilibrium in the money market? Explain your answer using both an AD-AS figure and a MD-MS figure. [3 points] 12. If the Central Bank knew that there would be a lag between their decision and their effect on AD, how would this change your answer to Q11 (if at all)?…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
Essentials of Business Analytics (MindTap Course ...
Statistics
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Cengage Learning
Efficient Market Hypothesis - EMH Explained Simply; Author: Learn to Invest - Investors Grow;https://www.youtube.com/watch?v=UTHvfI9awBk;License: Standard Youtube License