Harbin Manufacturing has 10 million shares outstanding with a current share price of $23.58 per share. In

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Harbin Manufacturing has 10 million shares outstanding with a current share price of $23.58 per share. In one year, the share price is equally likely to be $28 or $20. The risk-free interest rate is 5%.

a. What is the expected return on Harbin stock?

b. What is the risk-neutral probability that Harbin’s stock price will increase?

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Corporate Finance The Core

ISBN: 9781292158334

4th Global Edition

Authors: Jonathan Berk, Peter DeMarzo

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