Assume that securitization combined with borrowing and irrational exuberance in

Question

Assume that securitization combined with borrowing and irrational exuberance in Hyp driven up the value of existing financial securities at a geometric rate, speciicaity h to $16 to $32 to $64 over a six-year time period. Ov underlying the securities rose at an arithmetic rate from $2 to $3 to $4 to $5 to erville have from $2 to $4 to $8 the value of the assets $6 to $7. er the same period, Instructions: Enter your answer as a whole number these patterns hold for decreases as well as for increases, by how much would the value of the financial securities decline if the value of the underlying asset suddenly and unexpectedly fell by $5? If

Explanation / Answer

Answer

If we map value of financial securities with value of assets, we have the following mapping

F : {2,3,4,5,6,7} --------> Whole Number

n -------> 2^(n-1)

Let n be 7, then 2^(n-1) = 64

Similarly If n =2,then 2^(n-1) = 2

Hence Value of financially securities decline by 64 - 2 = $62

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