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The prices of stocks or other financial instruments are

Statistics for Engineers and Scientists | 4th Edition | ISBN: 9780073401331 | Authors: William Navidi ISBN: 9780073401331 38

Solution for problem 9E Chapter 4.6

Statistics for Engineers and Scientists | 4th Edition

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Statistics for Engineers and Scientists | 4th Edition | ISBN: 9780073401331 | Authors: William Navidi

Statistics for Engineers and Scientists | 4th Edition

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Problem 9E

The prices of stocks or other financial instruments are often modeled with a lognormal distribution. An investor is considering purchasing stock in one of two companies, A or B. The price of a share of stock today is $1 for both companies. For company A, the value of the stock one year from now is modeled as lognormal with parameters μ = 0.05 and σ = 0.1. For company B, the value of the stock one year from now is modeled as lognormal with parameters μ = 0.02 and σ = 0.2.

a. Find the mean of the price of one share of company A one year from now.

b. Find the probability that the price of one share of company A one year from now will be greater than $1.20.

c. Find the mean of the price of one share of comp any B one year from now.

d. Find the probability that the price of one share of company B one year from now will be greater than $1.20.

Step-by-Step Solution:

Solution

Step 1 of 5

Let X is the price of the company A share

Here X follows the lognormal distribution with parameters and

Let Y is the price of the company B share

Here Y follows the lognormal distribution with parameters and


Step 2 of 5

Chapter 4.6, Problem 9E is Solved
Step 3 of 5

Textbook: Statistics for Engineers and Scientists
Edition: 4
Author: William Navidi
ISBN: 9780073401331

Statistics for Engineers and Scientists was written by and is associated to the ISBN: 9780073401331. The answer to “The prices of stocks or other financial instruments are often modeled with a lognormal distribution. An investor is considering purchasing stock in one of two companies, A or B. The price of a share of stock today is $1 for both companies. For company A, the value of the stock one year from now is modeled as lognormal with parameters ? = 0.05 and ? = 0.1. For company B, the value of the stock one year from now is modeled as lognormal with parameters ? = 0.02 and ? = 0.2.a. Find the mean of the price of one share of company A one year from now.________________b. Find the probability that the price of one share of company A one year from now will be greater than $1.20.________________c. Find the mean of the price of one share of comp any B one year from now.________________d. Find the probability that the price of one share of company B one year from now will be greater than $1.20.” is broken down into a number of easy to follow steps, and 167 words. This full solution covers the following key subjects: Now, Company, price, share, stock. This expansive textbook survival guide covers 153 chapters, and 2440 solutions. This textbook survival guide was created for the textbook: Statistics for Engineers and Scientists , edition: 4. Since the solution to 9E from 4.6 chapter was answered, more than 333 students have viewed the full step-by-step answer. The full step-by-step solution to problem: 9E from chapter: 4.6 was answered by , our top Statistics solution expert on 06/28/17, 11:15AM.

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The prices of stocks or other financial instruments are