Question
Consider a continuous time framework where stock prices follow a GBM process. You observe a Stock X that currently trades at $45 per share, does
Consider a continuous time framework where stock prices follow a GBM process. You observe a Stock X that currently trades at $45 per share, does not pay dividends, and has a volatility of 20%. Suppose the riskless rate is 2% per annum (continuously compounded)
(i) What is the probability under the risk-neutral measure that this Stock X is worth at least $50/share one year from today?
(ii) What is the probability under the physical measure?
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Applied Corporate Finance
Authors: Aswath Damodaran
4th edition
978-1-118-9185, 9781118918562, 1118808932, 1118918568, 978-1118808931
