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

question 20

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%.If the outcome is tails,the stock price decreases by 0.75%.What is the drift of such a process?

• A)+1.25%
• B)-0.75%
• C)+0.25%
• D)+2.0%

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Definitions:

Therapeutic Experiences

Activities or interventions designed to heal, soothe, or improve mental, emotional, or physical well-being.

Transaction Balances

Cash kept on hand by a firm to pay normal daily expenses, such as employee wages and bills for supplies and utilities.

Marketable Securities

Temporary investment of “extra” cash by organizations for up to one year in U.S. Treasury bills, certificates of deposit, commercial paper, or Eurodollar loans.

Retained Earnings

Earnings after expenses and taxes that are reinvested in the assets of the firm and belong to the owners in the form of equity.