Question: An investor buys the stock of two companies investing 10 000

An investor buys the stock of two companies, investing $10,000 in each. The stock of each company either goes up by 80% after a month (rising to $18,000) with probability 1>2 or drops by 60% (falling to $4,000) with probability 1>2. Assume that the changes in each are independent. Let the random variable X denote the value of the amount invested after one month.
(a) Find the probability distribution of X.
(b) Find the mean value of X.
(c) Does the mean value represent the experience of the typical investor?

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  • CreatedJuly 14, 2015
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