"411 03-92Portfolio_Weights_Problem

"411 03-92Portfolio_Weights_Problem - Lecture 2...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
4/9/11 Lecture 2: Quantitative Review Solution Slides Slides with problems have white background Slides with solutions have red background
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4/9/11 22 Portfolio weights can be positive (a “long” position) or negative (a “short” position) Portfolio weights should always add to one ( ϖ 1 +..+ ϖ N =1) Equity - pos: you buy/buy on margin - neg: you short-sell Riskfree Asset - pos: you deposit money (buy a risk-free security) - neg: you borrow money (borrowing risk-free security) Portfolio Weights
Background image of page 2
4/9/11 33 Example : . You have $100,000 to invest . ABC shares: ABC is trading at $10/share In 1-year: ABC pays $1 in dividends, trades at $8/share . Risk-free deposit rf = 5% per year -> rABC = ?
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4/9/11 44 Portfolio A : buy 10,000 shares of ABC wABC = wf = Portfolio B : buy 5,000 shares of ABC, deposit at 5% wABC = wf = Portfolio C : buy 20,000 shares of ABC on margin and borrow at 5% wABC = wf = Portfolio D : sell-short 10,000 shares of ABC, deposit at 5% wABC = wf = Portfolio E : sell-short 5,000 shares of ABC, deposit at 5% wABC = wf =
Background image of page 4
4/9/11 55 What are the realized returns ?
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/09/2011 for the course MGMT 411 taught by Professor Clarke during the Winter '09 term at Purdue.

Page1 / 9

"411 03-92Portfolio_Weights_Problem - Lecture 2...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online