Question
A self-financing portfolio is worth $200 today. The portfolio invests $300 in a stock and borrows $100 at 10% annual interest rate today. Suppose that
A self-financing portfolio is worth $200 today. The portfolio invests $300 in a stock and borrows $100 at 10% annual interest rate today. Suppose that next year, the stock goes up by 20%. Which of the following portfolio composition next year violates the self-financing condition?
(A) The portfolio next year invests $150 in stock and invest $100 in riskfree bond.
(B) The portfolio next year invests $350 in stock and borrows $50. (C) The portfolio next year invests $200 in stock and invest $50 in riskfree bond.
(D) The portfolio next year invests $250 only in riskfree bond.
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