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:

Demand Curve

A visual chart that illustrates the connection between a product's price and the amount consumers are willing to buy.

Prices

The amount of money expected, required, or given in payment for something, reflecting the value of goods or services in monetary terms.

Highest Price

The maximum value that has been paid for a good or service in a particular market or setting.

Market Price

The existing rate at which a product or service is available for purchase or sale in a specific market.