) An investor has the opportunity to buy one of four different stocks. Each stoc
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Question
) An investor has the opportunity to buy one of four different stocks. Each stock is currently selling for $50 per share, and the investor will purchase 20 shares of one of the stocks and sell them one year later. If there is a recession (state 1) the selling prices will be $40, $52, $58, and $45. If there is no recession, the selling prices will be $53, $56, $54, and $60.
Complete the payoff table and opportunity loss table below.
Payoff Table
Alternatives
State 1
State 2
Stock 1
Stock 2
Stock 3
Stock 4
Opportunity Loss Table
Alternatives
State 1
State 2
Stock 1
Stock 2
Stock 3
Stock 4
Payoff Table
Alternatives
State 1
State 2
Stock 1
Stock 2
Stock 3
Stock 4
Explanation / Answer
Payoff Table
Alternatives
State 1
State 2
Stock 1
Stock 2
Stock 3
Stock 4
Opportunity Loss Table
Alternatives
State 1
State 2
Stock 1
Stock 2
Stock 3
Stock 4
Opportunity loss for stock 4 in State 2 = 200 - 200 = 0
Payoff Table
Alternatives
State 1
State 2
Stock 1
(40-50)*20 = -200 (53-50)*20 = 60Stock 2
(52-50)*20 = 40 (56-50)*20 = 120Stock 3
(58-50)*20 = 160 (54-50)*20 = 80Stock 4
(45-50)*20 = -100 (60-50)*20 = 200Related Questions
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