Corporate Finance
Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 21, Problem 19P

Harbin Manufacturing has 10 million shares outstanding with a current share price of $20 per share. In one year, the share price is equally likely to be $30 or $18. The risk-free interest rate is 5%.

  1. a. What is the expected return on Harbin stock?
  2. b. What is the risk-neutral probability that Harbin’s stock price will increase?
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Corporate Finance

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