The price of a share of a particular stock listed on the New York Stock Exchange is currently $39. The following probability distribution shows how the price per share is expected to change over a three-month period:

a. Construct a spreadsheet simulation model that computes the value of the stock price in 3 months, 6 months, 9 months, and 12 months under the assumption that the change in stock price over any 3-month period is independent of the change in stock price over any other 3-month period.

b. With the current price of $39 per share, simulate the price per share for the next four 3-month periods. What is the average stock price per share in 12 months? What is the standard deviation of the stock price in 12 months?

c. Based on the model assumptions, what are the lowest and highest possible prices for this stock in 12 months? Based on your knowledge of the stock market, how valid do you think this is? Propose an alternative to modeling how stock prices evolve over 3-month periods.

The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...

Essentials of Business Analytics

1st edition

Authors: Jeffrey Camm, James Cochran, Michael Fry, Jeffrey Ohlmann, David Anderson, Dennis Sweeney, Thomas Williams

ISBN: 978-1285187273

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