2 The Brownian Motion is used to model the liquid assets (i.e. "cash") of our startup company Math Finance Inc. You are our company's CFO (Chief Financial Officer). The initial value of our assets is 5 (measured in tens of thousands of dollars). The drift and volatility for the first two years turns out to be 2 and 3 respectively. During the next two years, the drift and volatility was observed to be 3 and 4 respectively. What can you say about the probabilistic behavior of our assets at the end of year four? Give proper mathematic explanation. What is the probability that our assets will be worth at least $150,000?
2 The Brownian Motion is used to model the liquid assets (i.e. "cash") of our startup company Math Finance Inc. You are our company's CFO (Chief Financial Officer). The initial value of our assets is 5 (measured in tens of thousands of dollars). The drift and volatility for the first two years turns out to be 2 and 3 respectively. During the next two years, the drift and volatility was observed to be 3 and 4 respectively. What can you say about the probabilistic behavior of our assets at the end of year four? Give proper mathematic explanation. What is the probability that our assets will be worth at least $150,000?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The Brownian Motion is used to model the liquid assets (i.e. "cash") of our startup company Math Finance Inc. You are our company's CFO (Chief Financial Officer). The initial value of our assets is 5 (measured in tens of thousands of dollars). The drift and volatility for the first two years turns out to be 2 and 3 respectively. During the next two years, the drift and volatility was observed to be 3 and 4 respectively. What can you say about the probabilistic behavior of our assets at the end of year four? Give proper mathematic explanation. What is the probability that our assets will be worth at least $150,000?
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