Suppose a person buys 100 shares of stock at in a company at the cost price of $10 per share. He plans to sell at the end of the next month at whatever is the price at that time. The projected price of the stock at the end of next month and the corresponding probability of reaching that price are given below:
Projected Price Probability
$8.00 0.10
$9.00 0.20
$10.00 0.25
$11.00 0.30
$12.00 0.15
Suppose X denotes the profit he will make from the sale of the 100 shares.
• What is the expected value of X?
• What is the variance of X?
expect value x
a. 8(0.1) + 9(.2) + 10(.25) + 11(.30) + 12 (.15) = 10.2
b. 8^2(0.1) + 9^2(.2) + 10^2(.25) + 11^2(.30) + 12^2(.15) = 180.5