BUSA501_ASSIGNMENT10_Tambela_Vaughn
6. The price of a share of a particular stock listed on the New York Stock Exchange is
currently $39. The following probability distribution shows how the price per share is
expected to change over a three-month period:
a. Construct a spreadsheet simulation model that computes the value of the stock price
in 3 months, 6 months, 9 months, and 12 months under the assumption that the
change in stock price over any 3-month period is independent of the change in stock
price over any other 3-month period.
The spreadsheet simulation model for the above problem is as shown below:
In order to find the simulation for the problem we need to download analytical solver
platform.
For the stock price in 3 months we use= 𝑃𝑠𝑖𝐷𝑖𝑠𝑐𝑟𝑒𝑡𝑒($𝐴$2: $𝐴$8, $𝐵$2: $𝐵$8)
b. With the current price of $39 per share, simulate the price per share for the next
four 3-month periods. What is the average stock price per share in 12 months?
What is the standard deviation of the stock price in 12 months?
From the above excel sheet with the current price of $39 per share, the simulation for the
next four 3-month periods are
Stock in 3 months= 𝐵17 + 𝐵11 + 𝑃𝑠𝑖𝑂𝑢𝑡𝑝𝑢𝑡()
Stock in 6 months= 𝐵19 + 𝐵12 + 𝑃𝑠𝑖𝑂𝑢𝑡𝑝𝑢𝑡()
Stock in 9 months= 𝐵20 + 𝐵13 + 𝑃𝑠𝑖𝑂𝑢𝑡𝑝𝑢𝑡()
Stock in 12 months= 𝐵21 + 𝐵14 + 𝑃𝑠𝑖𝑂𝑢𝑡𝑝𝑢𝑡()
The average stock price per share in 12 months is given by,
Mean= 𝑃𝑠𝑖𝑀𝑒𝑎𝑛(𝐵22) = 43.3
The standard deviation of the stock price in 12 months is given by,
Standard Deviation = 𝑃𝑠𝑖𝑆𝑡𝑑𝐷𝑒𝑣(𝐵22) = 3.1925
c. Based on the model assumptions, what are the lowest and highest possible prices for
this stock in 12 months? Based on your knowledge of the stock market, how valid do
you think this is? Propose an alternative to modeling how stock prices evolve over 3month periods.
From the model assumptions,
The lowest possible price for this stock in 12 months is 34 with the change of -2$
The highest possible price for this stock in 12 months is 54 with the change of 4$
Normal distribution or unbounded distribution are the alternatives to modeling the stock
price over 3 months’ period.