Bruce Mayer, PE Licensed Electrical &amp; Mechanical Engineer [email protected]

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Engineering 25. Prob 7.18 Solution Stock Market Simulation: Buy? Sell? Hold?. Bruce Mayer, PE Licensed Electrical &amp; Mechanical Engineer [email protected] Scenario. Behavior of Certain Stock Price, P, is randomly set by NORMAL distribution µ = \$100 σ = \$5

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Engineering 25

Prob 7.18SolutionStock Market Simulation:

Bruce Mayer, PE

Licensed Electrical & Mechanical [email protected]

Scenario
• Behavior of Certain Stock
• Price, P, is randomly set by NORMAL distribution
• µ = \$100
• σ = \$5
• Simulate Stock behavior over 250 days (1 trading year)
• If P<100, → BUY 50 Shares
• If P>105 → SELL ALL shares
• If 100< P < 105 → HOLD
• Add to Profit the Value of Stock HELD at END of Year
Key to Problem
• The Critical Issue required to get close to the BOOK answer is to realize:
• That at YEAR’S END we must Assess the Value of Any Shares NOT SOLD
• We will Very Likely (84.13% chance) have shares “Left Over” if P250 < \$105
• Add the Held-Over Value to the previous selling profit
Method-1 Results (1-Run)

=Stock purchase Profit summary =

SellDays =

38

133

HoldDays=

79

NoSharesLeftInPortfolio=

50

YearEndPrice=

98.9097

YearEndValue=

4.9455e+003

DailyProfit=

6.4715e+004

TotalProfit=

6.9660e+004

Method-2 Results

mean_yearly_profit=

6.5054e+004

min_yearly_profit=

4.9024e+004

max_yearly_profit=

9.0948e+004

std_profit=

5.7442e+003

MEAN_YrEnd_Price=

99.8867

AVG_YrEnd_Shares=

154.4088

MIN_YrEnd_Shares=

0

MAX_YrEnd_Shares=

1250

Method-1: 499 Runs

= Stock purchase Profit summary =

MAXProfit=

8.5555e+004

MINProfit=

4.6147e+004

AvgProfit =

6.4593e+004

StdPprofit=

5.7947e+003

AvgEndShares=

168.0361