Question
In: Statistics and Probability
Question I: Your stock analyst tells you that a stock will go to $40 with probability of 30%,
3. Answer both questions.
Question I: Your stock analyst tells you that a stock will go
to $40 with probability of 30%,
the stock will go to $50 with probability of 50% and will go
to $60 with probability of 20%.
Find the mean (expected value) and variance for the stock
price.
Question II: Your simple stock portfolio consists of stock X
and stock Y.
80% of your portfolio is made up of stock X and 20% is made up
of stock Y.
The mean price of the stock X is $30 and the mean price of
stock Y is $50.
The variance of stock X is 20 and the variance of stock Y is
10.
The covariance between them is 8.
Find the mean (expected value) and variance for the total
value of the portfolio.
4. The probability that anyone at your party makes it to the
end of the party is 80%.
Due to the current situation, there are only 5 (instead of
100?) people at your party.
Assuming that the possibility that any one person makes it to
the end of the party is independent of anyone else, then use the
Binomial model to find the probability that exactly
x = 0, 1, 2, 3, 4, 5 people make it to the end of the
party.
Solutions
orchestra answered 2 years agoRelated Solutions
Probability that stock A ends the day with a price below K20 is 40%. The probability...
Probability that stock A ends the day with a price below K20 is
40%. The probability stock B ends the day with a price below K20 is
25%. The probability stock A ends the day with a price below K20
given stock B ends the day with a price below K20 is 60%. Calculate
the probability stock A or stock B ends the day with a price below
K20.
Solve the question and show all steps: Consider the probability distribution shown here: Y -40 -30...
Solve the question and show all steps: Consider the probability
distribution shown here:
Y
-40
-30
-20
-10
0
10
20
30
40
P(Y)
.02
.07
.10
.15
.30
.18
.10
.06
.02
a. Calculate E(Y) or µ, VAR(Y) or ? 2 , and STDV(Y) or σ
b. Graph P(Y). Locate µ, µ - 2σ, and µ + 2σ on the graph
c. What is the probability that Y is in the interval ? ± 2??
You proposed a portfolio for your client with 60% in stock A and 40% in stock...
You proposed a portfolio for your client with 60% in stock A and
40% in stock B. Stock A has an average weekly return of 0.88% and
stock B has an average weekly return of 1.32%. Beta for stock A and
B are 0.8 and 1.3 respectively. Now you want to deliver a
performance report to the client regarding portfolio performance on
a weekly basis. (a). What’s the portfolio average weekly
return?
(b). What’s the portfolio beta?
(c). You have...
On a recent trip home, your grandfather tells you that he has purchased the stock of...
On a recent trip home, your grandfather tells you that he has
purchased the stock of two firms in the automobile industry: Toyota
and Ford. He goes on to discuss the merits of his decision and one
of the points he makes is that he has avoided the risk of
purchasing only one company’s stock by diversifying his holdings
across two stocks. What do you think of his argument? Based on your
study of financial management explain to your grandfather...
A stock analyst tracks three companies with stock prices f(t) = 40 + t + t...
A stock analyst tracks three companies with stock prices f(t) =
40 + t + t 2 − t 3/10, g(t) = 7 + t − t 2 + t 3/5, and h(t) = 15 +
t − t 2/2 + t 3/10 − t 4/200, t months into the year. A monthly buy
recommendation is due at the end of August, so t = 8. The analyst
believes in ‘momentum investing’ and looks for companies with stock
prices that...
Value of a stock is currently at $40. Volatility of that stock is 30% per year...
Value of a stock is currently at $40. Volatility of that stock
is 30% per year and risk-free interest rate with
continuous compounding is at 5% per year. Suppose you are planning
to value a 3-month European call
option with strike price at $41 using a two-step binomial model.
Answer the following using this
information.
What is the value of the option at present?
As a stock analyst, your boss, Jerry, has asked you to compile some information on stock...
As a stock analyst, your boss, Jerry, has asked you to compile
some information on stock of Southern Infrastructure Corporation
including a 95% confidence interval for the mean daily return that
he needs to include in a report to senior management. He says that
he is also not sure exactly what a 95% confidence interval means
and would like you to add an explanation.
You have been following the share price of Southern
Infrastructure Corporation and have recorded the daily...
The price of Strawberry Farms Inc. (SFI) stock today is $25.65. Your broker tells you that...
The price of Strawberry Farms Inc. (SFI) stock today is $25.65.
Your broker tells you that you could buy/sell a European call
option on SFI with a strike price of $26 and 11 month until
maturity for $5.00. Your research indicates that the variance of
SFI’s stock returns is 0.33 and you know that the continuously
compounded risk-free rate is 5%. Would you be willing to buy such
an option for the price quoted by your broker (i.e., $5.00)? Assume...
The analyst also tells you that shares in Chris Mining plc have no systematic risk, in...
The analyst also tells you that shares in Chris Mining plc have
no systematic risk, in other words that the returns on its shares
are completely unrelated to movements in the market. The value of
beta and its standard error are calculated to be 0.214 and 0.186,
respectively. The model is estimated over thirty-eight quarterly
observations. Write down the null and alternative hypotheses. Test
this null hypothesis against a two-sided alternative.
Stock AAA has the following probability distribution: If economy is good (the probability is 30%), its...
Stock AAA has the following probability distribution: If economy
is good (the probability is 30%), its expected stock return is 30%;
if economy is on average (the probability is 40%), its expected
stock return is 10%; if economy is bad (the probability is 30%),
its expected return is -10%. Find the expected rate of return for
stock AAA
4.0%
6.0%
10.0%
14.0%
Using the data from above, find the standard deviation (risk)
for stock AAA
13.49%
14.59%
15.49%
16.56%
Using...
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