Question

A financial analyst, assesses the likelihood of various possible future values of a stock price, assigns the following probability values to the predicted future price of the stock:

Future price: $40 $50 $65
Probability: 0.5 0.3 0.2

What is the expected value of the future stock price?

a. 16
b. 48
c. 50
d. 33.3
e. 51.6
f. 40

Answer 1

b. 48

Step-by-step explanation:

The computation of the expected value of the future stock price is as follows;

= Respective future price × respective probabilities

= $40 × 0.5 + $50 × 0.3 + $65 × 0.2

= $20 + $15 + $13

= $48

hence, the expected value of the future stock price is $48

Therefore the correct option is b.

The same is relevant