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Over a five-year period, the quarterly change in the price per share of common stock for a major oil company ranged from -8% to 12%.
Over a five-year period, the quarterly change in the price per share of common stock for a major oil company ranged from -8% to 12%. A financial analyst wants to learn what can be expected for price appreciation of this stock over the next two years. Using the fiveyear history as a basis, the analyst is willing to assume that the change in price for each quarter is uniformly distributed between -8% and 12%. Use simulation to provide information about the price per share for the stock over the coming two-year period (eight quarters).
(a) | Use the random numbers 0.52, 0.99, 0.12, 0.15, 0.50, 0.77, 0.40, and 0.52 to simulate the quarterly price change for each of the eight quarters. |
If required, round your answers to one decimal places. For those boxes in which you must enter subtractive or negative numbers use a minus sign. (Example: -300) |
Quarter | r | Return % |
---|---|---|
1 | 0.52 | % |
2 | 0.99 | % |
3 | 0.12 | % |
4 | 0.15 | % |
5 | 0.5 | % |
6 | 0.77 | % |
7 | 0.4 | % |
8 | 0.52 | % |
(b) | If the current price per share is $80, what is the simulated price per share at the end of the two-year period? |
If required, round your answer to two decimal places. | |
$ |
(c) | Discuss how risk analysis would be helpful in identifying the risk associated with a two-year investment in this stock. |
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