Consider the following simple model for daily changes in

Reference no: EM13617170

Consider the following simple model for daily changes in the price of a stock. Suppose that on each day, the price either go up $1 with probability 0.55 or goes down $1 with probability 0.45. Suppose the price at the beginning of day 1 is $20. Let Y denote the price at the end of day 20. Assume the stick price at the end each day is independent. Then Y = 20 + S20i=1 Xi

a) What is the distribution of Xi for I = 1, ..., n and Y?

b) Find E[Y] and Var[Y]

c) Use the central limit theorem to approximate P(X ³ 23)

Reference no: EM13617170

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