A stock sells today for $130. The price of the stock in a year is expected...

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Finance

A stock sells today for $130. The price of the stock in a yearis expected to be $140. The annual volatility of the stock is30%.
a. Calculate the probability that in six years the stock will sellfor more than $150.
b. Calculate the probability that in six years the stock will sellfor less than $115.
c. Calculate the probability that in six years the stock will sellfor a price between $120 and $160.
d. You are 85% confident the stock price in six years will bebetween what two values?
e. There is an 80% probability that in 6 years the stock price willexceed ___________

Answer & Explanation Solved by verified expert
3.7 Ratings (393 Votes)
a We assume BlackScholes accurately models stock price movements We also assume we know the future volatility sigma of the stocks price action Assume the stock price today is P Assume the pricetobetouched is S the strike price The probability X that the stock will touch or exceed the strike price S within T days can be found thus Z lnSP sigma sqrtT365 X CNDFZ ln natural logarithm log to the    See Answer
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A stock sells today for $130. The price of the stock in a yearis expected to be $140. The annual volatility of the stock is30%.a. Calculate the probability that in six years the stock will sellfor more than $150.b. Calculate the probability that in six years the stock will sellfor less than $115.c. Calculate the probability that in six years the stock will sellfor a price between $120 and $160.d. You are 85% confident the stock price in six years will bebetween what two values?e. There is an 80% probability that in 6 years the stock price willexceed ___________

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