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Question

You are considering buying a share of stock in a firm that has the following two possible payoffs with the corresponding probability of occurring. The stock has a purchase price of $50.00. You forecast that there is a 40% chance that the stock will sell for $70.00 at the end of one year. The alternative expectation is that there is a 60% chance that the stock will sell for $30.00 at the end of one year. What is the expected percentage return on this stock, and what is the return variance?
A) 4.00%, 30.72%
B) -8.00%, 15.36%
C) 8.00%, 15.36%
D) -4.00%, -30.72%

Answer

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