Imagine you have $5000 you want to invest. Swift corporations stock is currently selling for $100. The
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Question:
Imagine you have $5000 you want to invest. Swift corporation’s stock is currently selling for $100. The stock price will either go up to $110 or go down to $95 with equal probability.
Consider the following potential strategies:
A) Put the $5000 in a risk free T-bill that gets 4 percent.
B) Short sell $5000 of stock. Put all $10000 in T-bills that earns 4 percent.
For each of those strategies:
I) What are all possible payoffs?
II) What are all possible returns?
III) What is the expected return?
IV) What is the variance of the returns?
Related Book For
Fundamentals of Investing
ISBN: 978-0133075359
12th edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
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