Economics and Statistics > AQA QUESTION and MARK SCHEMES > Financial Markets (All)
Financial Markets
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You are bullish on company ABC and company XYZ, both of which are expected to pay dividends. Suppose you have $2 million to invest. You consider 4 different investment strategies in the form of portfo ... lios: Portfolio A Buy $1 million of ABC stock using cash. Buy $1 million of XYZ stocks using cash. Portfolio B Buy $2 million of ABC stock using $1 million and borrowing $1 million. Buy $2 million of XYZ stock using $1 million and borrowing $1 million. Portfolio C Buy call options on ABC stock expiring in one month, with strike $5 higher than ABC’s stock price. The cost of all these ABC options is not more than $500,000. Buy call options on XYZ expiring in one month, with strike $5 higher than XYZ’s stock price. The cost of all these XYZ options is not more than $500,000. Portfolio D Sell put options on ABC expiring in 1 month, with strike $5 lower than ABC’s stock price. Sell put options on XYZ expiring in 1 month, with strike $5 lower than ABC’s stock price. Question 1 Which portfolio(s) contain securities issued by the company? State at least 2 reasons WHY you selected it OR why you did NOT select the other securities. [Show More]
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