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Pete Pablo has $20,000 to invest. He is very optimistic about the prospects of two companies, 919 Brands Inc. and Diaries.com. However, Pete has a
Pete Pablo has $20,000 to invest. He is very optimistic about the prospects of two companies, 919 Brands Inc. and Diaries.com. However, Pete has a very pessimistic view of one company, a financial institution known as Star Bank. The current market price of each share and Pete's assessment of the expected return for each share appear below Share 919 Brands Diaries.com Star Bank Price Expected return $60 80 70 10% 14% 28% Pete decides to purchase 210 shares of 919 Brands and 180 shares of Diaries.com. What is the expected return on this portfolio? Can Pete construct this portfolio with the amount of money he has to invest? a b If Pete sells short 100 shares of Star Bank, how much additional money will he have to invest in the other two shares? lf Pete buys 210 shares of 919 Brands and 180 shares of Diaries.com, and he simultaneously sells short 100 shares of Star Bank, what are the resulting portfolio weights in each share? (Hint: The weights must sum to 1, but they need not all be positive.) d What is the expected return on the portfolio described in part (c)
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