Business I / Matrix Diagonalisation
Practice question · Estimate

After 10 periods, a Markov component with λ=0.5\lambda = 0.5 has magnitude 0.5100.5^{10}. Estimate this value (in thousandths).

Estimate on a scale from 0 to 10 (thousandths) (10).

Hints
  1. 0.510=1/10240.5^{10} = 1/1024.
  2. That is roughly 0.001, or about 1 thousandth.
Show the answer

0.977 (answers within ±0.5 count)

Why

0.510=1/10240.000980.5^{10} = 1/1024 \approx 0.00098, essentially zero. After 10 doublings of halving, the component has almost completely died out.

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