Boeing Company’s stock is currently trading at $160. Assume that the expected return on the stock is 13.5% per annum and its volatility is 22% per annum. What is the probability distribution for the stock price 12 months from now? Calculate the mean and standard deviation of the distribution.
a. Determine the 99% confidence interval.
b. Repeat the above calculations by using a volatility of 25%.
c. Compare the midpoint of the intervals in a) and b) with the expected stock price and explain why the midpoint is different from the expected stock price.