Question
a.Sandhill made a friendly wager with a colleague that involves the result from flipping a coin. If heads comes up, Sandhill must pay her colleague
a.Sandhill made a friendly wager with a colleague that involves the result from flipping a coin. If heads comes up, Sandhill must pay her colleague $13; otherwise, her colleague will pay Sandhill $13.
What is Sandhill's expected cash flow, and what is the variance of that cash flow if the coin has an equal probability of coming up heads or tails?(Round answers to 2 decimal places, e.g. 52.75.)
Expected cash flow $$$$_________Cash flow variance__________________
Suppose Sandhill's colleague is willing to handicap the bet by paying her $17 if the coin toss results in tails. If everything else remains the same, what are Sandhill's expected cash flow and the variance of that cash flow?
Expected cash flow$____________ Cash flow variance___________
b..You know that the price of Cullumber, Inc., stock will be $30 exactly one year from today. Today the price of the stock is $28. Determine what must happen to the price of Cullumber, Inc., today in order for an investor to generate a 25 percent return over the next year. Assume that Cullumber does not pay dividends.
The price shoulddroprise-----to $___________________
c.The expected value of a normal distribution of prices for a stock is $54. If you are 99 percent sure that the price of the stock will be between $39 and $69, then what is the variance of the stock price?(Round answer to 3 decimal places, e.g. 52.750.)
Variance of stock price $_________________
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