Question

A single share of a stock was purchased prior to the company's release of its quarterly report. There is a 50% chance that the company will meet the quarterly sales expectations for its new product two weeks from now, and the value of the stock will go to $330. Otherwise, the company will not meet the quarterly sales expectations, and the value of the stock will go down to $100. What is the expected value of the stock two weeks from now? (Round to the nearest dollar. Do not enter $ sign.)

Answer 1

215

Explanation:

There are two possibilities in the next two weeks

S = Stock goes up to $330 with a probability of 0.5

S' = Stock goes down to $100 with a probability of 0.5

Expected Value = Σ(Value x probability for each outcome)

= 330 x 0.5 + 100 x 0.5 = 165 + 50 = 215