(Solution Download) The prices of stocks or other financial instruments are often


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 company 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.

 







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