PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Question
Chapter 11, Problem 4P
(a)
To determine
Determine the maximum average expected return.
(b)
To determine
Determine the expected return if the investment is $500 in each stock.
(c)
To determine
Determine why the strategy of investing $500 in each stock is more acceptable, even if it does not give the highest possible average expected return.
(d)
To determine
Determine an investment strategy that guarantees at least 4.4% return
(e)
To determine
Determine an investment strategy that is riskless.
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Stephanie Carter has been gifted a sum of $50,000 by her grandparents on completing her graduation successfully. She is a fresh finance graduate and is excited to invest some money in the capital market, for which she intends to use the gifted sum of $50,000. However, instead of committing this money to the market immediately, she decides to wait for some time, work in the field and acquire some experience before proceeding with her intended investment. She thus contemplates an extremely conservative investment in a portfolio of stocks and bonds, at the start of year 5 from now. For now, she will leave the $50,000 in a fixed deposit with the bank which promises an interest rate of 6% per annum. She will require a return of at least 9% on her stock investments and 4% on bond investments. Stephanie would have to pay 25% taxes on any interest income. Dividends will be tax-free. Stephanie’s research has allowed her to narrow down on the following investment candidates:
Stocks:…
Your retirement portfolio comprises 100 shares of the Standard & Poor's 500 fund (SPY) and 100 shares of iShares Barclays Aggregate Bond Fund (AGG). The price of SPY is $115 and that of AGG is $96. If you expect the return on SPY to be 10% in the next year and the return on AGG to be 5%, what is the expected return for your retirement portfolio?
Please do your own work, don't copy from the internet
Q2)
2, You invest $3,000 for three years at 12 percent.
a. What is the value of your investment after one year? Multiply $3,000 × 1.12.
b. What is the value of your investment after two years? Multiply your answer to part a by 1.12.
c. What is the value of your investment after three years? Multiply your answer to part b by 1.12. This gives your final answer.
Combine these three steps by using the formula to find the future value of $3,000 in 3 years at 12 percent interest.
Chapter 11 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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