Imagine you have $1000 you want to invest. There are two stocks available. Swift corporation's stock...

 

 

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Imagine you have $1000 you want to invest. There are two stocks available. Swift corporation's stock is currently selling for $100. The stock price will either go up to $120 with probability 0.6 or go down to $90 with probability 0.4. Locke corporation stock is currently selling for $50. The stock will either go up to $60 with probability 0.7 or down to $35 with probability 0.3. The two stocks are uncorrelated. Consider the following potential strategies. a Invest all $1000 in Swift corporation's stock. b Invest all $1000 in Locke corporation's stock c Invest $500 in each stock. d Short sell $1000 of Locke corporation's stock. Put all $2000 in Swift corporation's stock. e Invest all $1000 in a risk-free T-bill that earns 1%. For each of those strategies: • What are all possible payoffs? • What are the possible returns? . What is the expected return? What is the variance of the returns? Imagine you have $1000 you want to invest. There are two stocks available. Swift corporation's stock is currently selling for $100. The stock price will either go up to $120 with probability 0.6 or go down to $90 with probability 0.4. Locke corporation stock is currently selling for $50. The stock will either go up to $60 with probability 0.7 or down to $35 with probability 0.3. The two stocks are uncorrelated. Consider the following potential strategies. a Invest all $1000 in Swift corporation's stock. b Invest all $1000 in Locke corporation's stock c Invest $500 in each stock. d Short sell $1000 of Locke corporation's stock. Put all $2000 in Swift corporation's stock. e Invest all $1000 in a risk-free T-bill that earns 1%. For each of those strategies: • What are all possible payoffs? • What are the possible returns? . What is the expected return? What is the variance of the returns?

Answer rating: 100% (QA)

Swift Corporation Current price 100 Probability of rising to 120 06 Probability of falling to 90 04 Locke Corporation Current price 50 Probability of rising to 60 07 Probability of falling to 35 03 Th... View the full answer