In anticipation of the new oPhone and Astronote, you decide to invest some of your $17,000...
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In anticipation of the new oPhone and Astronote, you decide to invest some of your $17,000 savings in the Mandarin (M) and TriStar (TS) stocks. The current stock prices are $112.70 for Mandarin and $1550.00 for TriStar. 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 TriStar will go down by 5%; or (iv) TriStar 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 TriStar 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 shortsell) 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 TriStar (TS) stocks. The current stock prices are $112.70 for Mandarin and $1550.00 for TriStar. 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 TriStar will go down by 5%; or (iv) TriStar 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 TriStar 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 shortsell) such that your portfolio return has the minimum possible risk?
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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: 9780078021749
4th edition
Authors: Stephen Cecchetti, Kermit Schoenholtz
Posted Date:
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