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1. Suppose that, if the stock increases one day, the probability that on the next day it increases (I) is 0.3, remains unchanged (U) is
1. Suppose that, if the stock increases one day, the probability that on the next day it increases (I) is 0.3, remains unchanged (U) is 0.2, decreases (D) is 0.5. On the other hand, if the stock is unchanged one day, the probability that on the next day it increases is 0.6, remains unchanged is 0.1, decreases is 0.3. If the stock decreases one day, the probability that it increases the next day is 0.3, is unchanged is 0.4, decreases is 0.3. a) Identify the states (Use I, U, and D) b) Write a transitional diagram c) Write a stochastic matrix with columns and rows labeled I, U, and that describes these transitions d) Suppose that on a particular Monday, a stock increases 20%, a stock remains unchanged, and a stock decreases. What is the Initial Distribution Matrix for Monday? e) On Tuesday, what percent of the stock will increase? f) On Wednesday, what percent of the stock will remain unchanged? $) On Thursday, what percent of the stock will decrease? 1. Suppose that, if the stock increases one day, the probability that on the next day it increases (I) is 0.3, remains unchanged (U) is 0.2, decreases (D) is 0.5. On the other hand, if the stock is unchanged one day, the probability that on the next day it increases is 0.6, remains unchanged is 0.1, decreases is 0.3. If the stock decreases one day, the probability that it increases the next day is 0.3, is unchanged is 0.4, decreases is 0.3. a) Identify the states (Use I, U, and D) b) Write a transitional diagram c) Write a stochastic matrix with columns and rows labeled I, U, and that describes these transitions d) Suppose that on a particular Monday, a stock increases 20%, a stock remains unchanged, and a stock decreases. What is the Initial Distribution Matrix for Monday? e) On Tuesday, what percent of the stock will increase? f) On Wednesday, what percent of the stock will remain unchanged? $) On Thursday, what percent of the stock will decrease
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