If a stock analyst believes there is a 25% probability that the stock price of Dymonatis will be $30 at the end of the year,a 50% probability that it will be $40,and a 25% probability that it will be $50,then the expected value of the stock at the end of the year is:
A)$30.
B)$35.
C)$40.
D)$50.

Question

Quizplus · Accepted Answer

The expected value is calculated by multiplying each possible outcome by its probability and then adding up all the products. In this case, the expected value is:

(0.25 x $30) + (0.5 x $40) + (0.25 x $50) = $7.50 + $20 + $12.50 = $40

Therefore, the expected value of the stock at the end of the year is $40, which corresponds to choice C.

If a Stock Analyst Believes There Is a 25% Probability