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2. Suppose the price of a stock follows a geometric BM with mean rate of return # = 0.16 per annum and volatility of =

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2. Suppose the price of a stock follows a geometric BM with mean rate of return # = 0.16 per annum and volatility of = 0.04 per annum. The current price of stock is So = 40. What is the probability that the stock price at the end of the next six months period will be higher than now, and in one year will be higher than the price in six months? [6 marks]

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