Over a five-year period, the quarterly change in the price per share of common s
ID: 2717932 • Letter: O
Question
Over a five-year period, the quarterly change in the price per share of common stock for a major oil company ranged from -8% to 12%. A financial analyst wants to learn what can be expected for price appreciation of this stock over the next two years. Using the fiveyear history as a basis, the analyst is willing to assume that the change in price for each quarter is uniformly distributed between -8% and 12%. Use simulation to provide information about the price per share for the stock over the coming two-year period (eight quarters).
(a) Use the random numbers 0.52, 0.99, 0.12, 0.15, 0.50, 0.77, 0.40, and 0.52 to simulate the quarterly price change for each of the eight quarters. If required, round your answers to one decimal places. For those boxes in which you must enter subtractive or negative numbers use a minus sign. (Example: -300)Explanation / Answer
(a)
The quarterly change in price per share has gone up from -8% to 12%.
The difference between the two is 20% or 0.20
Quarter
Random Number
Random number * 0.20
Quarterly Price Change
1
0.52
0.10
0.0240
2
0.99
0.20
0.1180
3
0.12
0.02
-0.0560
4
0.15
0.03
-0.0500
5
0.50
0.10
0.0200
6
0.77
0.15
0.0740
7
0.40
0.08
0.0000
8
0.52
0.10
0.0240
(b)
Quarter
Quarterly Price Change
Price/Share at end of period
1
0.0240
81.92
2
0.1180
91.59
3
-0.0560
86.46
4
-0.0500
82.13
5
0.0200
83.78
6
0.0740
89.98
7
0.0000
89.98
8
0.0240
92.14
Quarter
Random Number
Random number * 0.20
Quarterly Price Change
1
0.52
0.10
0.0240
2
0.99
0.20
0.1180
3
0.12
0.02
-0.0560
4
0.15
0.03
-0.0500
5
0.50
0.10
0.0200
6
0.77
0.15
0.0740
7
0.40
0.08
0.0000
8
0.52
0.10
0.0240
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