PLEASE PROVIDE ONLY THE ANSWERS, I DONT NEED AN EXPLANATION Problem 12-11 (Algor
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PLEASE PROVIDE ONLY THE ANSWERS, I DONT NEED AN EXPLANATION
Problem 12-11 (Algorithmic) over a five-year period, the quarterly change in the price per share of common stock for a major oil company ranged from -9% to 10%. A financial analyst wants to learn what can be expected for price appreciation of this stock over the next two years. Using the five-year history as a basis, the analyst is willing to assume that the change in price for each quarter is uniformly distributed between -9% and 10%. 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 0.51, 0.86, 0.14, 0.15, 0.55, 0.75, 0.44 and 0.52 to simulate the quarterly price change for each of the eight quarters. If required, round your answers to two decimal places. For those boxes in which you must enter subtractive or negative numbers use a minus sign. (Example: -300) Quarter r Return 1 0.51 0.86 0.14 4 0.15 0.55 6 0.75 0.44 8 0.52 b. If the current price per share is $83, what is the simulated price per share at the end of the two-year period? If required, round your answer to two decimal places.Explanation / Answer
The Answers are provided in "Bold". The rest is explanation only.
(a) Lets assume the random number 0 corresponds to -9.00% and 1 corresponds to 10.00%.
The difference between -9.00% and 10% is 19%, or 0.19. For the each quarter, multiply the random number (r) with 0.19, and add this to -0.09 to get the Quarterly Price Change (Return%) as follows:
The first quarter price change = -0.09 + 0.51(0.19) = 0.0069 = 0.69%.
The second quarter price change = -0.09 + 0.86(0.19) = 0.0734 = 7.34%.
The third quarter price change = -0.09 + 0.14(0.19) = -0.0634 = -6.34%.
The fourth quarter price change = -0.09 + 0.15(0.19) = -0.0615 = -6.15%.
The fifth quarter price change = -0.09 + 0.55(0.19) = 0.0145 = 1.45%.
The sixth quarter price change = -0.09 + 0.75(0.19) = 0.0525 = 5.25%.
The seventh quarter price change = -0.09 + 0.44(0.19) = -0.0064 = -0.64%.
The eighth quarter price change = -0.09 + 0.52(0.19) = 0.0088 = 0.88%.
(b) The share price at the end of each quarter is calculated by multiplying the previous price by (1 + quarter price change). Hence,
The price per share at the end of quarter 1 = 83(1 + 0.0069) = $83.5727.
The price per share at the end of quarter 2 = 83.5727(1 + 0.0734) = $89.71 (rounded to 2 decimal places).
The price per share at the end of quarter 3 = 89.71(1 - 0.0634) = $84.02 (rounded to 2 decimal places).
The price per share at the end of quarter 4 = 84.02(1 - 0.0615) = $78.85 (rounded to 2 decimal places).
The price per share at the end of quarter 5 = 78.85(1 + 0.0145) = $80.00 (rounded to 2 decimal places).
The price per share at the end of quarter 6 = 80.00(1 + 0.0525) = $84.20 (rounded to 2 decimal places).
The price per share at the end of quarter 7 = 84.20(1 - 0.0064) = $83.66 (rounded to 2 decimal places).
The price per share at the end of quarter 8 = 83.66(1 + 0.0088) = $84.39 (rounded to 2 decimal places).
So, the price per share at the end of 2 years = $84.39 (rounded to 2 decimal places).
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