Harbin Manufacturing has 10 million shares outstanding with a current share price of $20 per share. In
Question:
Harbin Manufacturing has 10 million shares outstanding with a current share price of $20 per share.
In one year, the share price is equally likely to be $30 or $18. The risk-free interest rate is 5%.
a. What is the expected return on Harbin stock?
b. What is the risk-neutral probability that Harbin’s stock price will increase?
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To calculate the expected return on Harbin stock we need to consider the potential future share pric...View the full answer
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