The Daily Price of a Farm Commodity Is Up, Down

question 42

Essay

The daily price of a farm commodity is up, down, or unchanged from the day before. Analysts predict that if the last price was down, there is a .5 probability the next will be down, and a .4 probability the price will be unchanged. If the last price was unchanged, there is a .35 probability it will be down and a .35 probability it will be up. For prices whose last movement was up, the probabilities of down, unchanged, and up are .1, .3, and .6.
a.Construct the matrix of transition probabilities.
b.Calculate the steady state probabilities.

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Definitions:

Financial Merger

A financial merger is a consolidation of two or more companies, primarily for financial gains, improving capital, or enhancing corporate strength through combined resources.

Columbia Pictures

A major American film studio and subsidiary of Sony Pictures, focusing on the production, marketing, and distribution of films and television content.

Subsidiary

A company controlled by a parent company.

Accounting Method

A set of rules and procedures used to determine when and how income and expenses are recognized and recorded in a company's financial statements.