On January 1,you Forecasted That There Is a 45 Percent

question 98

Multiple Choice

On January 1,you forecasted that there is a 45 percent chance that the stock price of Edward Bear Inc.will be $95 in one year while there is a 55 percent chance that the stock price will be $35.Six months later,you revised the estimated probability to 25 percent chance of the high state (stock price of $95) .If the market agrees with your revised forecasts,what is the expected change in stock 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:

Financial Advantage

The benefit gained in financial terms, enabling better standing in the market or more resources for operations.

Intermediate Product

A product that undergoes further processing before it becomes a final good ready for sale to the consumer.

Processed Further

A strategic decision in manufacturing pertaining to the continuation of additional operations or processing on a product to enhance its value.

Financial Advantage

The benefit of having a stronger financial position or undertaking actions that result in financial gain, such as cost savings or increased revenue.