The stock that can be shorted. Introduction: Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

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Chapter 11, Problem 32P

Summary Introduction

To determine: The stock that can be shorted.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

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You expect HGH stock to have a 20% return next year and a 45% volatility. You have $25,000 to invest, but plan to invest a total of $50,000 in HGH, raising the additional $25,000 by shorting either KBH or LWI stock. Both KBH and LWI have an expected return of 15% and a volatility of 35%. If KBH has a correlation of +0.9 with HGH, and LWI has a correlation of –0.90 with HGH, which stock should you short?

You expect TAS stock to have a 12% return next year and a 30% volatility. You have $5,000 to invest but plan to invest a total of $12,500 in TAS, raising the additional $7,500 by shorting either FEM or BNE stock. Both FEM and BNE have an expected return of 10% and a volatility of 20%. If FEM has a correlation of 0.3 with TAS, and BNE has a correlation of −0.30 with TAS. Use calculations to show which stock you should short to minimize your investment risk. How about your portfolio return in two different investment strategies?

You are thinking of buying a stock priced at $106 per share. Assume that the risk-free rate is about 5.1% and the market risk premium is 6.4%. If you think the stock will rise to $115 per share by the end of the year, at which time it will pay a $2.59 dividend, what beta would it need to have for this expectation to be consistent with the CAPM?

Answer 2

Question

Chapter 11, Problem 32P

Summary Introduction

To determine: The stock that can be shorted.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

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Answer 3

Question

Chapter 11, Problem 32P

Summary Introduction

To determine: The stock that can be shorted.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

Expert Solution & Answer

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Answer 4

Question

Chapter 11, Problem 32P

Summary Introduction

To determine: The stock that can be shorted.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

Expert Solution & Answer

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Answer 5

Chapter 11, Problem 32P

Summary Introduction

To determine: The stock that can be shorted.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

Answer 6

Chapter 11, Problem 32P

Summary Introduction

To determine: The stock that can be shorted.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

Answer 7

Chapter 11, Problem 32P

Summary Introduction

To determine: The stock that can be shorted.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

Answer 8

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Answer 9

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Answer 11

Ch. 11.1 - What is a portfolio weight?Ch. 11.1 - How do we calculate the return on a portfolio?Ch. 11.2 - What does the correlation measure?Ch. 11.2 - How does the correlation between the stocks in a...Ch. 11.3 - Prob. 1CC Ch. 11.3 - Prob. 2CC Ch. 11.4 - Prob. 1CC Ch. 11.4 - Prob. 2CC Ch. 11.4 - Prob. 3CC Ch. 11.5 - What do we know about the Sharpe ratio of the...

The stock that can be shorted. Introduction: Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

Solution Summary: The author explains the stock shorted by the investor is KBH. The expected return of HGH's stock is 20 percent and its volatility is 30%.

Concept explainers

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To determine: The stock that can be shorted.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

Want to see the full answer?

Chapter 11 Solutions

The stock that can be shorted. Introduction: Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

Solution Summary: The author explains the stock shorted by the investor is KBH. The expected return of HGH's stock is 20 percent and its volatility is 30%.

Concept explainers

Videos

To determine: The stock that can be shorted. Introduction: Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.

Want to see the full answer?

Chapter 11 Solutions

To determine: The stock that can be shorted.

Introduction:

Stock is a type of security in a company that denotes ownership. The company can raise the capital by issuing stocks.