Problem 2: (5 marks)

You purchase shares in Onix Inc. for the current market price of $100. You are anticipating a normal market (40% probability). If this is the case, you believe your shares will be worth $110 a year from today. There is a 30% chance there could be a bull market and a 30% chance it could be a bear market; in which case your shares will be $140 and $80 next year respectively. Onix does not pay out any dividends. What is your expected rate of return?