Question

Suppose you have $200 with which you can buy shares of stock from twocompanies: ABC Hot Chocolate Company and XYZ Lemonade. Each company'sstock currently sells for $100 per share. If the temperature next year is lower thanaverage, the stock price for ABC will increase by $20, and the stock price for XYZwill not change. If the temperature next year is higher than average, the stock pricefor XYZ will increase by $20, and the stock price for ABC will not change. There isa 50% chance that it will be colder than average next year, and a 25% chance that itwill be warmer than average. If you purchase two shares of XYZ stock and noshares of ABC stock, your expected gain will be _______

Answer 1

$40?

Step-by-step explanation:

there is a 25% higher chance that the following year would be cooler then that it would be warmer, therefore there would be no advantage in buying xyz stock