Coporate finance

Consider the following two, completely separate, economies. The expected return violatility of all stocks in both economies is the same. In the first economy, all stocks move together-in good times all prices rise together and in bad times they all fall together. In the second economy, stock returns are independent –one stock increasing in price has no effect on the price of other stocks. Assuming you are risk –averse and you could choose one of the two economies in which to invest, which one would you choose explain.

  1. 👍 0
  2. 👎 0
  3. 👁 157
  1. I'd invest in several stocks in the second economy. I'd be taking less risk because while some stock prices may fall, others will probably rise. The first economy is like putting all of your eggs in one basket.

    1. 👍 0
    2. 👎 0
    posted by Ms. Sue
  2. Ambrin Corp. expects to receive $2,000 per year for 10 years and $3,500 per year for the next 10 years. What is the present value of this 20 year cash flow? Use an 11% discount rate.

    1. 👍 0
    2. 👎 0

Respond to this Question

First Name

Your Response

Similar Questions

  1. Finance

    Consider the following two, completely separate, economies. Te expected return and volatility of all stocks in both economies is the same. In the first economy, all stocks move together- in good times all prices rise together and

    asked by Anonymous on August 2, 2010
  2. MATH for Business

    Linear Programming-Investment Strategy Invest at most $90,000 in securities in the form of corporate stocks. Options into three groups of stocks: blue-chip stocks will yield 3% return (dividends and capital appreciation) within a

    asked by Anonymous on November 4, 2015
  3. STRATEGIC MANAGEMENT

    6. At present, suppose the risk-free rate is 10 percent and the expected return on the market portfolio is 15 percent. The expected returns for four stocks are listed together with their expected betas. Stock Expected Return Beta

    asked by Anonymous on February 2, 2019
  4. Finance

    A portfolio consists of three stocks. The weight, expected rate of return and systematic risk for each stock are provided in the following table. Stock Investments Expected return A $7,500 20% B $10,000 15% C $2,500 10% Beta 1.5 1

    asked by Anonymous on November 28, 2011
  5. Math For Business

    A man has decided to invest at most $90,000 in securities in the form of corporate stocks. He has three options: blue chip stocks he assumes will yield a 6% return, growth stocks @ 12%, and speculative stocks @ 20%. No more than

    asked by Dave on November 19, 2007
  1. finance

    5. Consider the following stocks, all of which will pay a liquidating dividend in a year and nothing in the interim: Market Capitalization ($ million) Expected Liquidating Dividend ($ million) Beta Stock A 800 1000 0.77 Stock B

    asked by Ene on September 12, 2013
  2. Finance

    Suppose you are considering two investments, stock A and stock B. The beta of A is 1.20, and the beta of B is 0.80. Stock A has an expected return of 12% and Treasury Bills are yielding 3%. If the two stocks are fairly prices,

    asked by Bob on April 20, 2010
  3. Math

    Ed invests $68,000 in certificates of deposit (i.e., CDs) paying 1.75%. How much additional money does he need to invest in stocks that are expected to generate a return of 11.8% so that the average return on all of Ed’s

    asked by Jay on January 13, 2018
  4. finance

    Use the capital-asset pricing model to predict the returns next year of the following stocks, if you expect the return to holding stocks to be 12 percent on average, and the interest rate on three-month T-bills will be two

    asked by ky on April 28, 2011
  5. Finance

    we have two stocks Stock A and Stock B, Both stocks have the same expected rate of return 11%, but have different Standard Deviation 12%, and 20% respectively. based on the information above can we conclude that any rational

    asked by Bassem on September 16, 2014

More Similar Questions