Sunday, November 11, 2012

Chapter 6, Q18


A stock exchange has a mean stock price of $20 with standard deviation of $8.20.

Q. What is the probability a company will have a stock price of at least $40?

A. We want the right side of the distribution, because of the words at least.
So = 1 – norm.dist(40,20,8.20, true)= 0.007363

Q. How high does the stock price have to be to put the company in the top 10%?

A. The top 10% means on the right side of the distribution.

We need to find the value of the random variable that separates the top 10% from the bottom 90%.

We can use norm.inv for this. But—careful---if you put =norm.inv(0.1,20,8.2) you will get the random variable that separates the bottom 10 % from the top 90 %.

So =norm.inv(0.9,20,8.2) = 30.51 (rounded).

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