Over a five-year period, the quarterly change in the price pershare of common stock for a major oil company ranged from -7% to14%. A financial analyst wants to learn what can be expected forprice appreciation of this stock over the next two years. Using thefive-year history as a basis, the analyst is willing to assume thatthe change in price for each quarter is uniformly distributedbetween -7% and 14%. Use simulation to provide information aboutthe price per share for the stock over the coming two-year period(eight quarters).
- Use the random numbers 0.50, 0.95, 0.11, 0.15, 0.56, 0.75, 0.39and 0.52 to simulate the quarterly price change for each of theeight quarters. If required, round your answers to two decimalplaces. For those boxes in which you must enter subtractive ornegative numbers use a minus sign. (Example: -300)
| Quarter | r | Return % |
|---|
| 1 | 0.50 | % |
| 2 | 0.95 | % |
| 3 | 0.11 | % |
| 4 | 0.15 | % |
| 5 | 0.56 | % |
| 6 | 0.75 | % |
| 7 | 0.39 | % |
| 8 | 0.52 | % |
- If the current price per share is $80, what is the simulatedprice per share at the end of the two-year period? If required,round your answer to two decimal places.
$
- Discuss how risk analysis would be helpful in identifying therisk associated with a two-year investment in this stock.
Risk analysis requires of the eight-quarter,two-year period, which would then provide a distribution of theending price per share.
