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Explain the following: (i) limit order and (ii) stop loss order.

Explain the following: (i) limit order and (ii) stop loss order.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question 1

 

  • Explain the following: (i) limit order and (ii) stop loss order.
  • What criterion must a portfolio meet in order to be in the minimum variance set? Contrast the minimum variance set with the efficient set.
  • Suppose there were two portfolios known to be in the minimum variance set for a universe of three stocks. There are no restrictions on short sales. The weights for each of the two portfolios are as follows:

 

 

X(A)

X(B)

X(C)

Portfolio 1

-0.5

0.5

1

Portfolio 2

1.25

0.25

-0.5

 

  • What would the stock weights be for a portfolio constructed by investing $3,000 in portfolio 1 and $1,000 in portfolio 2? Show your calculations.
  • Would the new portfolio in part (i) be in the minimum variance set?
  • Suppose you combined the portfolio in part (i) with Portfolio 1 to form yet another portfolio. Would this new portfolio be in the minimum variance set?
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