On January 1, You Forecasted That There Is a 45

question 17

Multiple Choice

On January 1, you forecasted that there is a 45.0% chance that the price of Edward Bear Inc.shares will be $95 in one year while there is a 55.0% chance that the share price will be $35.Six months later, you revised the estimated probability to 25.0% chance of the high state (stock price of $95) .If the market agrees with your revised forecasts, what is the expected change in share price from January 1 to July 1? Assume the discount rate is zero.

• A)Price goes up by 19.35%
• B)Price goes down by 19.35%
• C)Price goes up by 24%
• D)Price goes down by 24%

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Definitions:

Budget Equation

A financial formula that equates an individual's or entity's income to their total expenses.

Leisure

Free time spent away from business, work, and domestic chores, often dedicated to relaxation, hobbies, or enjoyment.

Nonlabor Income

Refers to earnings that do not come from employment or work performed but from other sources such as investments, pensions, or inheritance.

Wage Rate

the standard amount of compensation given for labor services per unit of time, often expressed per hour or year.