Question
The price of stock you consider investing and the probabilities of occurrence are provided below: State Price Probability Growth 50 30% Stability 40 20% Recession
The price of stock you consider investing and the probabilities of occurrence are provided below:
State | Price | Probability |
Growth | 50 | 30% |
Stability | 40 | 20% |
Recession | 20 | 20% |
Crisis | 10 | 30% |
1. Estimate the expected value, the variance and the standard deviation of the stock price.
2. Suppose that due to new information about the firm, your previous predictions are updated positively by adding $10 in each state. Calculate the new expected value, variance and the standard deviation of the stock price.
3. There is a secret plan for a big acquisition deal that can triple the stock price in each state. Calculate the expected value, variance and the standard deviation of the stock price under this scenario.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started