Suppose that three stocks (A, B, and C) and two common risk factors (1 and 2)...
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Suppose that three stocks (A, B, and C) and two common risk factors (1 and 2) have the following relationship: E(RA) = (1.1)A; + (0.8)A2 E(Ra) = (0.7)A: + (0.6)A2 E(RC) (0.9); + (0.7) Az a. If A 3% and Az 5%, what are the prices expected next year for each of the stocks? Assume that all three stocks currently sell for $20 and will not pay dividend in the next year. Do not round intermediate calculations. Round your answers to the nearest cent. Expected price for Stock A: $ Expected price for Stock B: $ Expected price for Stock C: $ b. Suppose that you know that next year the prices for Stocks A, B, and C will actually be $31.53, $30.90, and $35.87. Assume that you can use the proceeds from any necessary short sale. Determine the riskless, arbitrage investment to take advantage of these mispriced securities. In order to create a riskless arbitrage investment, an investor would -Select- Va riskless arbitrage Investment. What is the profit from your investment? Round your answer to the nearest cent. $ b. Suppose that you know that next year the prices for Stocks A, B, and C will actually be $31.53, $30.90, and $35.87. Assume that you can use the proceeds from any necessary short sale. Determine the riskless, arh bts of there minari securities. a riskless arbitrage In order to create a riskless arbitrage investment, an investor woul -Select- Investment. What is the profit from your investment? Round your answer to the $ shart 1 share of A and share of B, and buy 2 shares of C. art 1 share of A and 1 share of C, and buy 2 shares of B. shart 1 share of Band share of C, and buy 2 shares of A. sert 2 shares of Aand buy 1 share of C and 1 share of B. shart 2 shares of Cand buy 1 share of A and 1 share of B Suppose that three stocks (A, B, and C) and two common risk factors (1 and 2) have the following relationship: E(RA) = (1.1)A; + (0.8)A2 E(Ra) = (0.7)A: + (0.6)A2 E(RC) (0.9); + (0.7) Az a. If A 3% and Az 5%, what are the prices expected next year for each of the stocks? Assume that all three stocks currently sell for $20 and will not pay dividend in the next year. Do not round intermediate calculations. Round your answers to the nearest cent. Expected price for Stock A: $ Expected price for Stock B: $ Expected price for Stock C: $ b. Suppose that you know that next year the prices for Stocks A, B, and C will actually be $31.53, $30.90, and $35.87. Assume that you can use the proceeds from any necessary short sale. Determine the riskless, arbitrage investment to take advantage of these mispriced securities. In order to create a riskless arbitrage investment, an investor would -Select- Va riskless arbitrage Investment. What is the profit from your investment? Round your answer to the nearest cent. $ b. Suppose that you know that next year the prices for Stocks A, B, and C will actually be $31.53, $30.90, and $35.87. Assume that you can use the proceeds from any necessary short sale. Determine the riskless, arh bts of there minari securities. a riskless arbitrage In order to create a riskless arbitrage investment, an investor woul -Select- Investment. What is the profit from your investment? Round your answer to the $ shart 1 share of A and share of B, and buy 2 shares of C. art 1 share of A and 1 share of C, and buy 2 shares of B. shart 1 share of Band share of C, and buy 2 shares of A. sert 2 shares of Aand buy 1 share of C and 1 share of B. shart 2 shares of Cand buy 1 share of A and 1 share of B
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