0.4) Nominal & Real Wages Table 4 gives average hourly nominal wages in manufact

Question

0.4) Nominal & Real Wages Table 4 gives average hourly nominal wages in manufacturing and the price levels in the Atlantis from 1501 to 1506. Answer each question on in a manner appropriate for the Issue at hand. (Show all work.) a) For each year, calculate the real wage. b) In what year did the nominal wage increase the most? c) In what year did the real wage increase the most? d) Did you get the same years for both (b) and (e)? 1f you did not, what accounts of the difference? e) True, false or uncertain? ?It is impossible to have a situation where the nominal wage is falling and the price level is falling, while the real wage still increases?? Provide an example and an explanation.

Explanation / Answer

The payoff from the call option is $17 if the stock price rises and $12 if the stock price falls. From the binomial pricing model we can create a replicating portfolio with the following two equations:

$17 = ($47 × x) + (1.05 × y)

$12 = ($42 × x) + (1.05 × y)

x = 1 share of stock

y = –28.57 of risk free bonds

The value of the option is the value of the replicating portfolio:

(1 × $45) + (–28.57) = $16.43

Related Questions

Navigate

• Browse (All)
• Browse
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.