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    Could somebody please tell me what answer they get for this question ....


    You are considering whether to buy 750 shares of a company currently priced at £4 per share. You estimate that the shares will either increase in value by 25% over the next 6 months or decrease by 40% over the same period. You intend holding the shares for 6 months and believe that the probability of a rise in share price is 0.7. Alternatively you can leave the money in the bank and earn £175 in interest over this period.

    What is the expected return from the optimal policy to two decimal places?
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    £750.00

    Source: I don't know economics
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    (Original post by Docjones1)
    £750.00

    Source: I don't know economics
    really? i did think it was 750.00 but thought that it can't be that straight forward.

    Thanks
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    (Original post by antony4321)
    really? i did think it was 750.00 but thought that it can't be that straight forward.

    Thanks
    I literally don't know. I just took the question at face value and that's what the answer struck me as.
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    (Original post by antony4321)
    Could somebody please tell me what answer they get for this question ....


    You are considering whether to buy 750 shares of a company currently priced at £4 per share. You estimate that the shares will either increase in value by 25% over the next 6 months or decrease by 40% over the same period. You intend holding the shares for 6 months and believe that the probability of a rise in share price is 0.7. Alternatively you can leave the money in the bank and earn £175 in interest over this period.

    What is the expected return from the optimal policy to two decimal places?
    It's not £750. Suppose you invest in the shares. What is E(X) (where X is the percentage the shares rise by)?
 
 
 
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