Kevin is investigating the performance of TRA shares. He believes that for a given 2-month period,...

 

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Kevin is investigating the performance of TRA shares. He believes that for a given 2-month period, the probability of the share price increasing by 4% (i.e. x 1.04) is 0.65 and the probability of decreasing by 4% (i.e. x 0.96) is 0.35. The current price of one TRA share is $19. a) Calculate the expected value of the TRA share price after 2 months. [2 marks] b) Consider the number of times the TRA share price increases in the next 2 years. What distribution should you use to model this? What values should you use for the parameters of the distribution? [2 marks] c) Calculate the mean and variance of the distribution in part (b). [2 marks] d) Estimate the probability that the share price will be more than $28 after 2 years. Do NOT use the normal approximation. [4 marks] Kevin is investigating the performance of TRA shares. He believes that for a given 2-month period, the probability of the share price increasing by 4% (i.e. x 1.04) is 0.65 and the probability of decreasing by 4% (i.e. x 0.96) is 0.35. The current price of one TRA share is $19. a) Calculate the expected value of the TRA share price after 2 months. [2 marks] b) Consider the number of times the TRA share price increases in the next 2 years. What distribution should you use to model this? What values should you use for the parameters of the distribution? [2 marks] c) Calculate the mean and variance of the distribution in part (b). [2 marks] d) Estimate the probability that the share price will be more than $28 after 2 years. Do NOT use the normal approximation. [4 marks]