In anticipation of the new oPhone and Astronote, you decide to invest some of your $17,000...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
In anticipation of the new oPhone and Astronote, you decide to invest some of your $17,000 savings in the Mandarin (M) and Tri-Star (TS) stocks. The current stock prices are $112.70 for Mandarin and $1550.00 for Tri-Star. To decide how much to invest in each stock, you ask your trusted investment advisor, Rupert, how he sees the stock prices in one month. He tells you that the following 4 scenarios are equally likely to happen: (i) Both stocks will go up by 15%; (ii) Both will go down by 15%; (iii) Mandarin will go up by 15% while Tri-Star will go down by 5%; or (iv) Tri-Star will go up 10% while Mandarin price does not change. BR (a) (4 Points) Find the data of the market: μM, TS, M, OTS and σM,TS. (b) (2 Points) Suppose that you buy 80 shares of Mandarin and 3 shares of Tri-Star and keep the remainder of your money in your current account (which pays zero interest rate). What is the mean and variance of your portfolio return? (c) (4 Points) Suppose that you decide to spend all of your wealth in the two stocks. How many shares of each stock should you buy (or short-sell) such that your portfolio return has the minimum possible risk? In anticipation of the new oPhone and Astronote, you decide to invest some of your $17,000 savings in the Mandarin (M) and Tri-Star (TS) stocks. The current stock prices are $112.70 for Mandarin and $1550.00 for Tri-Star. To decide how much to invest in each stock, you ask your trusted investment advisor, Rupert, how he sees the stock prices in one month. He tells you that the following 4 scenarios are equally likely to happen: (i) Both stocks will go up by 15%; (ii) Both will go down by 15%; (iii) Mandarin will go up by 15% while Tri-Star will go down by 5%; or (iv) Tri-Star will go up 10% while Mandarin price does not change. BR (a) (4 Points) Find the data of the market: μM, TS, M, OTS and σM,TS. (b) (2 Points) Suppose that you buy 80 shares of Mandarin and 3 shares of Tri-Star and keep the remainder of your money in your current account (which pays zero interest rate). What is the mean and variance of your portfolio return? (c) (4 Points) Suppose that you decide to spend all of your wealth in the two stocks. How many shares of each stock should you buy (or short-sell) such that your portfolio return has the minimum possible risk?
Expert Answer:
Answer rating: 100% (QA)
a To find the data of the market we need to calculate the means expected returns and standard deviations of the two stocks Lets denote Mandarin as M and TriStar as TS M 15 025 15 025 15 025 0 025 375 ... View the full answer
Related Book For
Money Banking and Financial Markets
ISBN: 978-0078021749
4th edition
Authors: Stephen Cecchetti, Kermit Schoenholtz
Posted Date:
Students also viewed these finance questions
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
prepare a post-closing trial balance. Cash Account Titles Accounts Receivable Supplies Accounts Payable Unearned Service Revenue Owner's Capital Owner's Drawings Service Revenue Salaries and Wages...
-
Jessica began a day care business three years ago and has worked hard to make it successful. She originally invested $4,000 of her own money and borrowed $10,000 from the bank to start her business....
-
Consider another uneven cash flow stream: a. What is the present (year 0) value of the cash flow stream if the opportunity cost rate is 10 percent? b. What is the future (year 5) value of the cash...
-
Water flows from the nozzle attached to the spray tank shown in Fig. P8.86. Determine the flowrate if the loss coefficient for the nozzle (based on upstream conditions) is 0.75 and the friction...
-
Statham drew a check. The payee indorsed it to Kemp Motor Sales. Statham then stopped payment on the check on the grounds that there was a failure of consideration for the check. Kemp sued Statham on...
-
Please watch the Google Talk on Valuation featuring Aswath Damodoran, Professor of Finance at NYU. What are two things that surprised you about Aswath's presentation. Was there anything learned that...
-
A refinery blends four petroleum components into three grades of gasolineregular, premium, and diesel. The maximum quantities available of each component and the cost per barrel are as follows: To...
-
A company's recent dividend is $1 per share. The company expects dividends to grow 10% over the next three years. After that, dividends will increase by 5% forever. Its stock beta is 1.0. Currently,...
-
The following table shows a profit-maximizing producer's marginal costs. The firm is operating in a perfectly competitive market and has fixed costs of $500. Quantity 8 1345678 Marginal Cost (S) 200...
-
Stock C is expected to pay a dividend of $2.80 next year. Between Year 1 and Year 4, the dividends are expected to grow 15% per year. Starting from Year 5, the dividend growth rate will be 1%. If the...
-
The Bank of America just sold a "three against six" $4,000,000 FRA on a three-month interest rate for a three-month period beginning three months from today and ending six months from today. The...
-
Prepare the journal entries for all the part 1 transactions Create ???? accounts for all accounts and add the part 1 transactions Part 1 Transactions: January 1 - Phin invested $ 1 8 , 5 0 0 of his...
-
Kinston Industries is considering investing in a machine that will cost $245.000 and will last for three years. Assume that Kinston's new machine will be depreciated straight line to a salvage value...
-
Dennis has come to see you for advice on maximising his superannuation and minimising his tax payable as well as estate planning advice. Denis is aged 53 and is married to Ella, aged 49. They have 2...
-
Solve for the equilibria of the following discrete-time dynamical systems Pr pt+1 = Pr+2.0(I-Pr)
-
Suppose the policy interest rate controlled by the central bank and the inflation rate were both zero. Explain in terms of the aggregate demand-aggregate supply framework how the economy could fall...
-
In theory, the velocity of money should rise with the cost of holding it. To assess the theory, plot the opportunity cost of holding M2 defined as the difference between the three-month Treasury...
-
Why is it important to be able to quantify risk?
-
Describe how partial and circular reasoning can be helpful or harmful in resolving ethical dilemmas.
-
Describe the various legal risks for nurses.
-
Describe the various roles of advanced practice nurses.
Study smarter with the SolutionInn App