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    Portfolio 1

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    ankit cool
    The document discusses two portfolio options for investing in Best Candy stock which is sensitive to sugar prices. Portfolio 1 invests 50% in Best Candy stock and 50% in low-risk government bonds. Portfolio 2 invests equally between Best Candy stock and a sugar company stock that performs well when sugar crops fail. The second portfolio is claimed to better hedge risks, but it is unclear if this claim is valid without calculating the expected returns and risks of both portfolio options.

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    Portfolio 1

    Uploaded by

    ankit cool
    10 views2 pages
    The document discusses two portfolio options for investing in Best Candy stock which is sensitive to sugar prices. Portfolio 1 invests 50% in Best Candy stock and 50% in low-risk government bonds. Portfolio 2 invests equally between Best Candy stock and a sugar company stock that performs well when sugar crops fail. The second portfolio is claimed to better hedge risks, but it is unclear if this claim is valid without calculating the expected returns and risks of both portfolio options.

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    The document discusses two portfolio options for investing in Best Candy stock which is sensitive to sugar prices. Portfolio 1 invests 50% in Best Candy stock and 50% in low-risk government bonds. Portfolio 2 invests equally between Best Candy stock and a sugar company stock that performs well when sugar crops fail. The second portfolio is claimed to better hedge risks, but it is unclear if this claim is valid without calculating the expected returns and risks of both portfolio options.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    10 views2 pages

    Portfolio 1

    Uploaded by

    ankit cool
    The document discusses two portfolio options for investing in Best Candy stock which is sensitive to sugar prices. Portfolio 1 invests 50% in Best Candy stock and 50% in low-risk government bonds. Portfolio 2 invests equally between Best Candy stock and a sugar company stock that performs well when sugar crops fail. The second portfolio is claimed to better hedge risks, but it is unclear if this claim is valid without calculating the expected returns and risks of both portfolio options.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    of 2

    PORTFOLIO 1

    1. The value of Best candy Stock is sensitive to price of sugar- its basic raw
    material. When sugar crops are low, price rises, the profit margin
    suffers. The Cos fortune is described by following scenarios:
    Normal Year of Crop
    Abnormal Year
    Bullish Bearish
    Low Sugar Crop
    Probability 0.5 0.3 0.2
    Rate of Return 25% 10% -25%

    Using conventional Statistics find out 1)Expected Return and 2)Sd.


    Deviation. If Instead of investing entire fund in candy stock, if 50% is
    held in risk free 5% Govt. bond, what will be the return & risk of the
    portfolio ?

    Contd. 2
    Portfolio 2
    A consultant is hired who spots a sugar co. which does extremely
    well during crop failure. A scenario analysis of the company
    reveals following

    Normal Year
    Sugar Crisis
    Bull Bear
    Probability 0.5 0.3
    0.2

    Return Rate 1% -5%


    35%

    The consultant advises to construct a portfolio of stock of Best Candy


    stock with the sugar co. stock by investing equally. He says It is
    a better hedged portfolio than investing in Govt. bond. What do
    you advocate?.

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