Assume you have a $100,000 with 0.5% risk and wish to buy a stock and place an 8

Question

Assume you have a $100,000 with 0.5% risk and wish to buy a stock and place an 8% stop loss. You determine that$40 is a good entry point for the stock. Assumethat you win 25% of the time and have a gain of 22% each win. When you lose, you lose 6%. (6 points) SHOW ALL WORK - Determine the position size number of shares stop loss price_ average win per trade , and You buy one Alpha Corporation bond which has a par value of $1,000 and settles on November 20, 201Z. The bond pays interest each January 15h and July 15th. The bond 3.

Explanation / Answer

sol. The maximum loss that he is willing to take is equal to 0.5% of $100,000= $500

the entry point is equal to $40 and maximum loss( with 8% stop loss in position)= 0.08*40=$3.2

total number of shares he will buy so that his maximum loss is equal to $500 with stop loss in position= 500/3.2=156.25=156 shares

position size= 156*40=$6240

number of shares=156

stop loss price= 40- (0.08*40)=$36.8

Average win per trade= 0.25*22 - 0.75*6=1%

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