An investor has analyzed a stock for a one-year holding period. There is a fifty-fifty chance that the stock, currently selling at Tk. 60, will sell for Tk. 55 or Tk. 70 by the year end. The investor can borrow on 40 percent margin from his bank at 10 per cent per annum. (a) What is the investor's expected holding period yield and risk if he buys 100 shares and does not borrow? (b) What would be his expected yield and risk if he buys 200 shares paying 60 per cent of the cost with borrowed funds?
An investor has analyzed a stock for a one-year holding period. There is a fifty-fifty chance that the stock, currently selling at Tk. 60, will sell for Tk. 55 or Tk. 70 by the year end. The investor can borrow on 40 percent margin from his bank at 10 per cent per annum. (a) What is the investor's expected holding period yield and risk if he buys 100 shares and does not borrow? (b) What would be his expected yield and risk if he buys 200 shares paying 60 per cent of the cost with borrowed funds?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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An investor has analyzed a stock for a one-year holding period. There is a fifty-fifty chance that the stock, currently selling at Tk. 60, will sell for Tk. 55 or Tk. 70 by the year end. The investor can borrow on 40 percent margin from his bank at 10 per cent per annum. (a) What is the investor's expected holding period yield and risk if he buys 100 shares and does not borrow? (b) What would be his expected yield and risk if he buys 200 shares paying 60 per cent of the cost with borrowed funds? |
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