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Exercise 1. Imagine you have $5000 you want to invest. Swift corporation's stock is currently selling for S100. The stock price will either go up
Exercise 1. Imagine you have $5000 you want to invest. Swift corporation's stock is currently selling for S100. The stock price will either go up to $120 or go down to $90 with equal probability. Consider the following potential strategies a Invest all $5000 in the stock b Borrow $5000 from your broker. Invest all S10000 in the stock. From the proceeds, pay the broker back the $5000 owed (no interest) c Put the $5000 in a risk free T-bill that gets 2 percent d Short sell $5000 of stock. Put all $10000 in T-bills that earns 2 percent For each of those strategies: What are all possible payoffs? What are the possible returns? What is the expected return? What is the variance of the returns
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