Question

The price of a share of stock is currently $39. The following probability distribution shows how the price per share is expected to change over a 3-month period:

Price Change ($) Probability

-2 0.05 -

1 0.10

0 0.25

+1 0.35

+2 0.25

If you were to set up a table for random sampling from this distribution using VLOOKUP on Excel, what price change would you generate using a random number of 0.6568?

a) +1

b) 0

c) +2

d) -1

e) -2

Answer 1

	probability	cumulative probability
-2	0.05	0.05
1	0.1	0.15
0	0.25	0.4
1	0.35	0.75
2	0.25	1

here for 0.6568 falls between 0.40 and 0.75 cumulative probability which belongs to $1 change

option A is correct