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gll une Assighments tab on Canvas. 1. (10 points) Trosset exercise 8.4.6 A certain financial theory posits that daily fluctuations in stock prices are independent randon variables. Suppose that the daily price fluctuations (in dollars) of a certain value stock are independent and identically distributed random variables XI, X2, X with EX 0.01 and Var Xi 0.01. (Thus, if todays price of this stock is $50, then tomorrow's price is S50+ X1, etc.) Suppose that the daily price fluctuations (in dollars) of a certain growth stock are independent and identically distributed random variables Yi, Y, Ys, , with EN, 0 and Var 0.25. Now suppose that both stocks are currently selling for $50 per share and you wish to invest $50 in one of these two stocks for a period of 400 market days. Assume that the costs of (a) Approximate the probability that you will make a profit on your investment if you (b) Approximate the probability that you will make a proft on your investment if you (e) Approximate the probability that you will make a prolfit of at least $20 if you purchase (d) Approximate the probability that you will make a profit of at least $20 if you purchase (e) Assuming that the growth stock fluctuations and the value stock fluctuations are inde- purchasing and selling a share of either stock are zero. purchase a share of the value stock. purchase a share of the growth stock a share of the value stock a share of the growth stock. pendent, approximate the probability that, after 400 days, the price of the growth stock will exceed the price of the value stock gll une Assighments tab on Canvas. 1. (10 points) Trosset exercise 8.4.6 A certain financial theory posits that daily fluctuations in stock prices are independent randon variables. Suppose that the daily price fluctuations (in dollars) of a certain value stock are independent and identically distributed random variables XI, X2, X with EX 0.01 and Var Xi 0.01. (Thus, if todays price of this stock is $50, then tomorrow's price is S50+ X1, etc.) Suppose that the daily price fluctuations (in dollars) of a certain growth stock are independent and identically distributed random variables Yi, Y, Ys, , with EN, 0 and Var 0.25. Now suppose that both stocks are currently selling for $50 per share and you wish to invest $50 in one of these two stocks for a period of 400 market days. Assume that the costs of (a) Approximate the probability that you will make a profit on your investment if you (b) Approximate the probability that you will make a proft on your investment if you (e) Approximate the probability that you will make a prolfit of at least $20 if you purchase (d) Approximate the probability that you will make a profit of at least $20 if you purchase (e) Assuming that the growth stock fluctuations and the value stock fluctuations are inde- purchasing and selling a share of either stock are zero. purchase a share of the value stock. purchase a share of the growth stock a share of the value stock a share of the growth stock. pendent, approximate the probability that, after 400 days, the price of the growth stock will exceed the price of the value stock
