# 21-19. 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…

**21-19. 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?**

a. E[r] = 0.5(28 + 20)/23.58 – 1 = 1.78%