5) Assume the following prices of Microsoft are: Day stock price 0 $25 126 228 3...

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5) Assume the following prices of Microsoft are: Day stock price 0 $25 126 228 3 31 4 30 528 6 30 731 8 30 928 10 27 1% filter rule is defined as follows: Buy the stock if the daily return >=1%, hold the stock until its daily return =1%, at which time the investor covers and buys. Absolute daily returns <1% in either direction are ignored. a) If you follow the strategy of using a 1% filter rule, on what days would you buy Microsoft stock? b) On what day would you sell and short Microsoft stock? c) Ignoring transaction costs, what is the rate of return you can earn by following the 1% filter rule? d) What is the rate of return you can earn from buying the stock on day 0 and selling it on day 10? 5) Assume the following prices of Microsoft are: Day stock price 0 $25 126 228 3 31 4 30 528 6 30 731 8 30 928 10 27 1% filter rule is defined as follows: Buy the stock if the daily return >=1%, hold the stock until its daily return =1%, at which time the investor covers and buys. Absolute daily returns <1% in either direction are ignored. a) If you follow the strategy of using a 1% filter rule, on what days would you buy Microsoft stock? b) On what day would you sell and short Microsoft stock? c) Ignoring transaction costs, what is the rate of return you can earn by following the 1% filter rule? d) What is the rate of return you can earn from buying the stock on day 0 and selling it on day 10?

Answer rating: 100% (QA)

a You would buy Microsoft stock on Day 3 and Day 6 as the daily return o... View the full answer