Find the expected value of the random variable x

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A modified random walk model for a stock price assumes that at each time step the price can either increase by a fixed amount ? > 0, decrease by this same fixed amount ? > 0, or remain unchanged. Suppose that P1, 0 < P1 < 1 is the probability of an increase, that P2, 0 < P2 < 1 is the probability of a decrease, and that P3 = 1 - P1 - P2 is the probability of no change. Let X be the discrete random variable representing the change in a single step.

(a) Find the expected value of the random variable X.

(b) Find the variance of the random variable X.

Reference no: EM132402323

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