Question

Imagine that the investor in Exercise 37 invests $10,000 for one month in a company whose stock either goes up by 80% after a month with probability 1>2 or drops 60% with probability 1 > 2. After one month, the investor sells this stock and uses the proceeds to buy stock in a second company. Let the random variable Y denote the value of the $10,000 investment after two months.10
(a) Find the probability distribution of Y.
(b) Find the mean value of Y.
(c) Does the mean value represent the experience of the typical investor?


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  • CreatedJuly 14, 2015
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