An investor has a stock that each week goes 50 cents up with probability 50% or

Question

An investor has a stock that each week goes 50 cents up with probability 50% or 50 cents down with probability 50%. She bought the stock when it costed $25 and will sell it when it reaches $55 or falls to $5.

(a) What is the probability that she will sell it at $5?

(b) Find the mean number of weeks the investor keeps the stock.

(c) Find the probability that the price of the stock will again be $25 before the investor sells it.

(d) How many times, on average, will the price of the stock return to its initial value of $25 before the investor sells it?

Explanation / Answer

A. 0.6.

(b) Answer: 2400.

(c) Answer: 0.979.

(d) Answer: 47

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