Assume that the future stock price in T years is given by ST = S0 exp[(μ – 0.5σ2)T + (σ√T)ε], where the current stock price S0=105, expected return µ=0.15, volatility σ=0.80 and ϵ is a standard normal random variable. What is the price level in 6 months such that there is only a 1% chance of the actual value being higher? a. 360 b. 26 c. 105 d. 570
Assume that the future stock price in T years is given by ST = S0 exp[(μ – 0.5σ2)T + (σ√T)ε], where the current stock price S0=105, expected return µ=0.15, volatility σ=0.80 and ϵ is a standard normal random variable. What is the price level in 6 months such that there is only a 1% chance of the actual value being higher? a. 360 b. 26 c. 105 d. 570
Chapter6: Risk And Return
Section: Chapter Questions
Problem 14P
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Assume that the future stock price in T years is given by ST = S0 exp[(μ – 0.5σ2)T + (σ√T)ε], where the current stock price S0=105, expected return µ=0.15, volatility σ=0.80 and ϵ is a standard normal random variable. What is the price level in 6 months such that there is only a 1% chance of the actual value being higher?
a.
360
b.
26
c.
105
d.
570
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