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Homework answers / question archive / You short-sell 200 shares of Tuckerton Trading Co
You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. You also place a stop-buy order at $60. What is your maximum possible loss? (2 Points) Enter your answer 6. An investor with a degree of risk aversion A- 5 will demand a risk premium of on a portfolio with a standard deviation of 10%. (2 Points) Enter your answer 7. An investor invests 40% of his wealth in a risky asset with an expected rate of return of 15% and a variance of 4% and 60% in a treasury bill that pays 6%. What are portfolio's expected rate of return and standard deviation? (2 Points) Enter your answer 8. Issuance of large blocks of shares could
5) Short-selling: Selling the securities in the market at a higher price and then buying it when it comes at a lower price. Facilitated by exchange and brokers are involved in the trade.
Solution : Current market price = $50 per share
Stop loss (buy order ) = $60
number of stock : 200 shares
Maximum stop loss that can happen,
($60 -$50 ) x 200 = $10 x 200 = $2000
So, the maximum possible loss is $2000
6) Market Risk Premium is given as ,
market risk premium =Risk Aversion Coefficient (A)*Standard Deviation2
Risk aversion coefficient = 5
Standard deviation = 10%
So, putting the values in the equation,
= 5 x 0.102 = 0.05 or 5%
