A Random Walk Process for a Single Stock Consists of the Toss

question 49

Multiple Choice

A random walk process for a single stock consists of the toss of a fair coin at the end of each day. If the outcome is heads, the stock price increases by 1.25 percent. If the outcome is tails, the stock price decreases by 0.75 percent. What is the drift of such a process?

• A)+1.25 percent
• B)−0.75 percent
• C)+0.25 percent
• D)+2 percent

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Definitions:

Goodness-Of-Fit

A statistical test used to determine how well sample data fits a distribution from a population with a normal distribution.

Unusual Results

Events or data points that significantly differ from the bulk of the data or from what is expected.

Null Hypothesis

In statistical hypothesis testing, it is the hypothesis that there is no effect or no difference and is the statement being tested against the alternative hypothesis.

Genetic Characteristics

Attributes, traits, or disorders determined by genes inherited from an individual's parents.