Question

An investor purchases a share of Synovous Bank stock this morning for $2.80. The investor believes the economy will take one of three conditions in the coming year, and each condition will have an impact on the selling price of the stock. The investor’s beliefs about the economy are shown below:

OUTCOME: Probability Synovous Price in One Year

Bad for Banks 0.36 $2.51

Moderate for Banks 0.40 $3.06

Good for Banks 0.24 $3.25

What is the expected return if you invest in Synovous stock today (based on the investor’s assumptions)?

Answer 1

Calculating the Expected price of stock based on OUTCOMES;-

Outcomes	Probability(p)	Price in $(P)	(p)*(P)
Bad for Banks	0.36	2.51	0.9036
Moderate for Banks	0.40	3.06	1.224
Good for Banks	0.24	3.25	0.78
Expected Price in one year			2.9076

Expected Return on Share = [(Price in one Year-Current price)/Current Price]*100

= [(2.9076-2.80)/2.80]*100

= 3.84%

So, the Expected Return if  invest in Synovous stock today is 3.84%

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