Question

Chase is currently trading at $66.02. Analysts predict that there is a 20 % probability that the stock may rise to $73 over the next year, a 50 % chance is will rise to $68 and a down side case of 30 % that the sock may fall for $57. What is the expected percentage return for Chase over the next year?

Answer 1

First we will calculate the expected price next year as per below:

Expected price = Sum of (Stock prices next year * Respective Probabilities)

Expected price = (20% * $73) + (50% * $68) + (30% * $57)

Expected price = $14.6 + $34 + $17.1 = $65.7

Now, we will calculate the expected percentage return as below:

Expected percentage return = Expected price - Current price / Current price * 100

Expected percentage return = ($65.7 - $66.02) / $66.02 * 100

Expected percentage return = - $0.32 / $66.02 * 100 = -0.48%

So, expected percentage return will be negative 0.48%.