Question: On January 1 FinCorp Inc completed its analysis of the
On January 1, FinCorp Inc. completed its analysis of the prospects for the Geriatric Toy Store and concluded that there was a 15-percent chance the stock price would be $150 in one year and an 85-percent chance the stock price would be $200. Six months later, FinCorp Inc. revised its estimated probabilities to a 35-percent chance of a stock price of $150 and a 65 percent chance of $200. If the market agrees with FinCorp Inc.’s revised probabilities, what is the expected change in stock price from January 1 to July 1? Assume the discount rate is zero.
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