Homework Answers
Solution:
given
probabilities to possible changes in the stock price over the next year.
(a) expected change in stock price, or E(Y):
E(Y) = 15* 0.1 + 5* 0.35 + 0* 0.35 - 5 * 0.15 - 15* 0.05
= 1.5 + 1.75 + 0 - 0.75 - 0.75
= 1.5 + 1.75 - 1.5
E(Y) = 1.75 ( % )
(b) probability that the stock price falls is:
from given values
at 0.05 the probability stock price falls to the least -15
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