Problem: 1. Given six years of percentage return of Stock A and Stock B, identify the expected return, and risk of each instrument. Assume that each year, has equal chances of reoccurrence. Stock A Stock B 20X1 10 20 20X2 -15 -20 20X3 20 -10 20X4 25 30 20X5 -30 -20 20X6 20 60 a. Which of the two stocks is riskier? Why? b. Which of the stocks is expected to yield a higher return? Why? c. Where will you invest?
Problem:
1. Given six years of percentage return of Stock A and Stock B, identify the expected return, and risk of each instrument. Assume that each year, has equal chances of reoccurrence.
|
|
Stock A |
Stock B |
|
20X1 |
10 |
20 |
|
20X2 |
-15 |
-20 |
|
20X3 |
20 |
-10 |
|
20X4 |
25 |
30 |
|
20X5 |
-30 |
-20 |
|
20X6 |
20 |
60 |
a. Which of the two stocks is riskier? Why?
b. Which of the stocks is expected to yield a higher return? Why?
c. Where will you invest?
Problem Solving:
1. Suppose you want to buy 10,000 shares of MegaWorld Corporation at a price of 4.00. You put up P10,000 and borrow the rest. What does your account balance sheet would look like? What is your margin?
2. Supposed that in the previous problem you shorted 10,000 shares instead of buying. The initial margin is 60 percent. What does the account balance sheet look like?
3. You deposited P100,000 cash in brokerage account and short sell P200,000 of stocks on margin. Later the value of the stocks held short rises to P250,000. What is your account margin in percent?
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