Stock A and stock B.
Every day the price of stock A will either increase by 1 dollar with probability 0.6 or decrease by one dollar with probability 0.4. Similarly stock B will either increase by 2 dollars with probability 0.55 or decrease by two dollars with probability 0.45.
1. If, at the beginning, the prive of stock A was 100 dollars and that of stock B was 120 dollars, what is the (approximate) price distribution of stock A and B after 100 days?
MY ANSWERS:
Mu-stockA=.2 multiply by n=100 so Mu-stockA=20
Mu-stockB=20 as well
using this equation i found Stand.Dev.
Var^2=SUM( (Xi-mu)^2 * p(Xi) ) ....i then multiplied variance by n and took the entire square root to get...
StandDev.-stockA=9.7979
StandDev.-stockB=19.8997
2. Compute the probability that, after 100 days, the price of stock A will be less than than its initial price. Do the same for stock B.
MY ANSWERS:
I found probability P(price < 0)...i chose 0 b/c if it became negative that means stocks decrease ( i assume) and found the Z values
StockA:
(0-20)/9.7979 = z-value of -2.04 so proba. =.0207
StockB:
(0-20)/19.8997= z-value of -1.005 so probab. = .1587
3. At the beginning you have 20000 dollars and you buy 140 stock A and 50 stock B. What is the probability that after 100 days you have lost money? Doubled your initial capital?
can you hint me on how to start this one?
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