consider the following probability distribution of price in one year for security with current price of...
consider the following probability distribution of price in one year for security with current price of $40:
| Stock price in one year ($) | Probability PR |
| 35,00$ | 40% |
| 45,00$ | 35% |
| 50,00$ | 25% |
The expected return for security is closest to:
a) 7,55%
b) 4,5%
c) 0,0%
d) 5,65%
Homework Answers
Ans d) 5.65%
| Probability (P) | Return (Y) | (P * Y ) |
| 40% | -5 | -2.00 |
| 35% | 5 | 1.75 |
| 25% | 10 | 2.50 |
| TOTAL | 10 | 2.25 |
| Expected Return = | (P * Y) / Share Price * 100 | |
| 2.25/ 40 * 100 | ||
| 5.65% |
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