Latest topics
»  How To Get A Life
Wed May 11, 2011 3:51 am by Chrismarke

» New York city,
Fri May 06, 2011 3:40 am by Chrismarke

» funny time ~
Thu Apr 21, 2011 10:39 am by Chrismarke

» Chicago city
Sat Apr 16, 2011 4:02 am by Chrismarke

» Top 10 most popular attractions
Mon Apr 04, 2011 4:30 am by Chrismarke

» Hi everyone
Fri Apr 01, 2011 4:29 am by Chrismarke

»  Washington
Thu Jan 13, 2011 5:02 am by Chrismarke

» Are you smart enough to answer this riddle?
Wed Oct 27, 2010 7:17 pm by zanggazq

» Hi all
Tue Oct 26, 2010 1:51 pm by Chrismarke


About portfolio diversification and risk?

Go down

About portfolio diversification and risk?

Post by alb3rt on Mon Oct 11, 2010 12:49 pm

Suppose that you have $100,000 to invest for one year. You are considering buying stocks. There are many companies whose stock you could potentially buy. Suppose that each company you are considering is very risky: in one year, the company's stock will either be worth nothing, or worth four times its current value, with each outcome equally likely (that is, each outcome has a probability of ½). Assume for simplicity that there are no dividends and no inflation. Assume that each company’s fate is independent of each other company’s fate. Finally, assume for now that there are no brokerage cost or other transactions costs to buying stocks.

(a) Suppose you invest your entire $100,000 in one company's stock. What is the probability that you will wind up with nothing? What is the probability that you will wind up with $400,000? What is the expected (or average, or mean) value of your stock after one year?


Posts : 2
Join date : 2010-09-20

View user profile

Back to top Go down

Back to top

Permissions in this forum:
You cannot reply to topics in this forum