Question

Problem 12-05 (Algorithmic) the New York Stock Exchange is currently $40. The following probability distribution shows how the price per share is expected to change over a three-month perlod: The price of a share of a particular stock listed Stock Price Change ($) Probability o.10 -3 .10 .20 0.15 0.15 1 0.20 0.10 f random numbers that can be used to generate the change in stock price over a three-month period. If required, round your answers to two decimal places. a. Set up intervals Stock Price Probability Interval Change but less than 4 0.10 but less than 3 0.10 0.20 but less than 2 but less than 1 0.15 but less than 0.15 but less than +1 0.20 but less thanl 2 0.10 b. With the current price of $40 per share and the random numbers 0.7537, 0.4063, 0.7059 and 0.1625, simulate the price per share for the next four 3-month periods. Random Number Price Change Ending Price Per Share 0.7537 0.4063 0.7059 0.1625 What is the ending simulated price per share?

Answer 1

(a)

Stock price change	Probability	Cumulative probability	Interval
-4	0.10	0.10	0.00	but less than	0.10
-3	0.10	0.20	0.10	but less than	0.20
-2	0.20	0.40	0.20	but less than	0.40
-1	0.15	0.55	0.40	but less than	0.55
0	0.15	0.70	0.55	but less than	0.70
1	0.20	0.90	0.70	but less than	0.90
2	0.10	1.00	0.90	but less than	1.00

(b)

Random No.	Price change	Ending price
0.7537	1	41
0.4063	-1	40
0.7059	1	41
0.1625	-3	38

Ending price is 38