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An investor buys $10,000 of the stock of a certain company and decides to hold for two month Assume that in each of the next two months, the stock either goes up by 10% with probability 1/2 or drop by 8% with probability 1/2. Also assume that the changes in the two months are independent. Which of the following statements is true? The expected value of the amount invested after one month is larger than $10,200 b. The expected value of the amount invested after one month is equal to $10,200 c. The expected value of the amount invested after one month is smaller than $10,200 d. The expected value of the amount invested after one month is still $10,000 e. Cannot determine based on the given information C.

An investor buys $10,000 of the stock of a certain company and decides to hold for two month Assume that in each of the next two months, the stock either goes up by 10% with probability 1/2 or drop by 8% with probability 1/2. Also assume that the changes in the two months are independent. Which of the following statements is true? The expected value of the amount invested after one month is larger than $10,200 b. The expected value of the amount invested after one month is equal to $10,200 c. The expected value of the amount invested after one month is smaller than $10,200 d. The expected value of the amount invested after one month is still $10,000 e. Cannot determine based on the given information C.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 8P
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38. An investor buys $10,000 of the stock of a certain company and decides to hold for two months Assume that in each of the next two months, the stock either goes up by 10% with probability 1/2 or drop by 8% with probability 1/2. Also assume that the changes in the two months are independent. Which of the following statements is true? The expected value of the amount invested after one month is larger than $10,200 b. The expected value of the amount invested after one month is equal to $10,200 The expected value of the amount invested after one month is smaller than $10,200 d. The expected value of the amount invested after one month is still $10,000 Cannot determine based on the given information
Transcribed Image Text:38. An investor buys $10,000 of the stock of a certain company and decides to hold for two months Assume that in each of the next two months, the stock either goes up by 10% with probability 1/2 or drop by 8% with probability 1/2. Also assume that the changes in the two months are independent. Which of the following statements is true? The expected value of the amount invested after one month is larger than $10,200 b. The expected value of the amount invested after one month is equal to $10,200 The expected value of the amount invested after one month is smaller than $10,200 d. The expected value of the amount invested after one month is still $10,000 Cannot determine based on the given information
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