Homework SourseAn investor has the opportunity to buy one of four differen
) 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 |
Solution
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 = 60 |
| Stock 2 | (52-50)*20 = 40 | (56-50)*20 = 120 |
| Stock 3 | (58-50)*20 = 160 | (54-50)*20 = 80 |
| Stock 4 | (45-50)*20 = -100 | (60-50)*20 = 200 |
