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Suppose you know that there is a 40 percent probability that Microsoft will be selling for $22.50 three months from now and a 60 percent probability that it will be selling for $42.50. Microsoft does not pay a dividend. Currently, Microsoft is selling for $30. You are thinking of either buying 100 shares or selling short one hundred shares. If you go long, what is your expected outcome per share? What is the most you can make by going short? If you were mildly risk averse, would you choose going long or short?

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