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An investor has decided to model PPB plc shares using the continuous-time lognormal model....

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Finance

An investor has decided to model PPB plc shares using the continuous-time lognormal
model. Using historical data, the investor has estimated the annual drift and
volatility parameters to be 6% and 25% respectively. PPBs current share price is
$2.
(a) Calculate the mean and variance of PPBs share price in one years time.
(b) Calculate the probability that:
i. PPBs shares fall in value over the next year.
ii. PPBs shares yield a return of greater than 30% over the next year. Assume
that no dividends are to be paid over the next year.

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