Consider a stock over a two-day period with current price of 200. The stock price will move up or down 12 units on day one and will move up or down 9 units on day two from its day one price. Thus there are four possible prices on day two: 221, 203, 197, 179 with probabilities 0.3, 0.4, 0.2, 0.1, respectively.

A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
Section: Chapter Questions
Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...
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Consider a stock over a two-day period with current price of 200. The
stock price will move up or down 12 units on day one and will move up or down
9 units on day two from its day one price. Thus there are four possible prices on
day two: 221, 203, 197, 179 with probabilities 0.3, 0.4, 0.2, 0.1, respectively.
1. Draw the probability tree of the stock price over a two-day period.
2. Find the expected value of the price on day two.
Transcribed Image Text:Consider a stock over a two-day period with current price of 200. The stock price will move up or down 12 units on day one and will move up or down 9 units on day two from its day one price. Thus there are four possible prices on day two: 221, 203, 197, 179 with probabilities 0.3, 0.4, 0.2, 0.1, respectively. 1. Draw the probability tree of the stock price over a two-day period. 2. Find the expected value of the price on day two.
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