Current price of Company X’s stock is $80. The table below gives the data on the nend of the year prices and probabilities dependent on the state of the economy. Calculate the expected return for the stock (no dividends).

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Current price of Company X’s stock is $80.  The table below gives the data on the nend of the year prices and probabilities dependent on the state of the economy.  Calculate the expected return for the stock (no dividends).

 

 

 

  1. A) 0%
  2. B) 0%
  3. C) 5%
  4. D) 5%
  5. E) None of the above
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Answer: E

 

Expected Price = 0.5*130 + 0.5*90 = 110; Expected return = (110 -80)/80 = 37.5%

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