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Pam has a job at a jewelry kiosk in a mall. Pam doesn't like to work hard, and it costs her $100 to do so. Pam's employer cannot observe whether Pam works hard. If Pam works hard, there is a 75% probability that jewelry profits will equal $400 a day and a 25% probability that jewelry profits will equal $100 a day. Suppose Pam is paid $200 if jewelry profits are $400 a day and $50 if jewelry profits are $100 a day. What is Pam's expected pay for working hard?
Intrinsic Value
The perceived or calculated true value of an asset, based on fundamentals, without regard to market value.
Actual Stock Price
The current trading price of a company's shares on the stock market.
Required Return
This is the percentage yield that an investor expects to earn from an investment to make it worthwhile.
Common Share
A type of equity share that represents ownership in a company, granting the holder voting rights and a share in the company's profits through dividends.
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