Atex Inc., a U.S. firm, holds an asset in Bulgaria and faces the following scenario:
State 1 State 2 State 3
Probability 25% 50% 25%
Spot rate $0.30/BL $0.20/BL $0.15/BL
P* BL 2,000 BL 5,000 BL 3,000
P $600 $1,000 $450
where,
P* = Bulgarian Lev (BL) price of the asset held by the U.S. firm
P = Dollar price of the same asset
The expected value of the investment in U.S. dollars is:
$2,083.33
$762.50
$6,250.00
$6,562.50