The price of a stock is $75 per share. The stock is not expected to pay...
The price of a stock is $75 per share. The stock is not expected to pay any cash dividends over the
next year. The returns on the stock have a normal probability distribution with expected value of 15%
and a standard deviation of 40%.
(a) What is the probability that the price of the stock will be $25 or less one year from now?
(b) What is the probability that the price of the stock will be between $75 and $100 one year from
now?
(c) What is the probability that the price of the stock will be exactly $25 one year from now?
(d) What is the minimum amount you can lose on the stock on a per share basis with the probability
of 10%?
Homework Answers
1.
=NORMDIST(25/75-1,15%,40%,TRUE)=2.06%
2.
=NORMDIST(100/75-1,15%,40%,TRUE)-NORMDIST(75/75-1,15%,40%,TRUE)=32.28%
3.
0
4.
=NORMINV(0.1,15%,40%)*75=27.1965
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