Chapter 12, Problem 12.50AC

Although investing all at once works best when stock prices are rising, dollar-cost averaging can be a good way to take advantage of a fluctuating market. Dollar-cost averaging is an investment strategy designed to reduce volatility in which securities are purchased in fixed dollar amounts at regular intervals regardless of what direction the market is moving. This strategy is also called the constant dollar plan. You are considering a hypothetical $1,200 investment in a media company's stock. Your choice is to invest the money all at once or dollar-cost average at the rate of $100 per month for one year. Assume that the company allows you to purchase "fractional" shares of its stock. (a)If you invested all of the money in January and bought the shares for $12 each, how many shares could you buy?  shares (b)From the following chart of share prices, calculate the number of shares that would be purchased each month using dollar-cost averaging and the total shares for the year. Round…

Question 4) There are three type of investment in a portfolio: S&P 500 index, 10-year treasury bond index, cash invested in money market a 1-day federal fund rate. Table 1 represents S&P 500 index for return on stocks, 10-year treasury bond index for return on bonds and cash invested in money market a 1-day federal fund rate. Table 1. S&P 500 Index, Bond Index and Money Market Bonds 3287,3 Money Market 1007,8 Year Stocks 1995 792,1 1996 973,9 3291,6 1055,3 1997 1346,5 1670,1 2011,3 1837,4 3687,3 4220,2 3903,3 4575,3 1119,5 1165,2 1998 1999 1246,5 2000 1313,1 (a) Calculate the geometric means of rates of return for stocks, bonds, and money market. (b) Calculate the covariance matrix of rates of return. Table 2. Covariances between rates of return of securities Covariance Stocks Stocks Bonds Money Market ? ? Bonds ? ? ? Money Market ? ? ? (c) Set the quadratic program to minimize the portfolio risk. It is assumed that shortsales are allowed.

The shrinking rainy day fund. On October 5 2015 The Boston Globe published a story headlined "state's rainy day fund has dwindled over the past decade" that said (in part):  In the summer of 2007, before the massive recession began, the rainy day fund had $2.3 billion --a cushion of about 7.8 percent of total state spending, according to the Taxpayers Foundation. This summer the rainy day balance stood at $1.1 billion--about 2.7 percent of total state spending, a fraction small enough to raise a red flag for analysis.  What is the percentage change in total state spending between the summer of 2007 and this past summer?