5. The price of a share of a particular stock listed on the New York Stock Excha

Question

5. The price of a share of a particular stock listed on the New York Stock Exchange is currently $39. The following probability distribution shows how the price per share is expected to change over a three-month period:

a. Set up intervals of random numbers that can be used to generate the change in stock price over a three-month period.

b. With the current price of $39 per share and the random numbers 0.1091, 0.9407, 0.1941, and 0.8083, simulate the price per share for the next four 3-month periods. What is the ending simulated price per share?

Explanation / Answer

a. Set up intervals of random numbers that can be used to generate the change in stock price over a three-month period.

Solution-

b. With the current price of $39 per share and the random numbers 0.1091, 0.9407, 0.1941, and 0.8083, simulate the price per share for the next four 3-month periods. What is the ending simulated price per share?

Solution-

Ending Price Per Share=$45

Stock Price Change Probability Interval -2 0.05 .00 but less than .05 -1 0.10 .05 but less than .15 0 0.25 .15 but less than .40 +1 0.20 .40 but less than .60 +2 0.20 .60 but less than .80 +3 0.10 .80 but less than .90 +4 0.10 .90 but less than 1.00

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