Question

HELP PLEASE ASAP

An investor bought 2,500 shares of a stock for $8 a share. He estimates the probability that the stock will rise to a value of $32 a share is 22%, and the probability it will fall to $3 a share is 78%. What is the expected value of the investor’s profit from buying the stock?

A. $23,450
B. $18,291
C. $5,159
D. $3,450

Answer 1

Answer: D. $3,450
Given: 2,500 shares of a stock bought for $8 a share
Probabilities: the stock will rise to a value of $32 a share is 22% the stock will fall to $3 a share is 78%
Question: What is the expected value of the investor’s profit from buying the stock?
Solution: (22%(32-8)-78%(8-3))2500
(.22(24)-.78(5))2500
(5.28-3.9)2500
(1.38)2500
3450