Purchase Solution

Forecasting stock prices

Not what you're looking for?

Ask Custom Question

1. Explain how puts and calls can be used to reduce reisk, speculate, and increase portfolio returns.

3. List a minimum of four fundamental factors to be considered when trying to forecast stock prices.

4. List two advantages of buying a put on a stock instead of selling it (the stock) short.

5. If you expect interest rates to decrease, what would you be likely to do if you held primarily cash and common stock in your portfolio? Why?

6. Jane invests $20,000, and five years later has accumulated $32,210. At the same time, her friend Joe invests $20,000 but withdraws $2,000 per year over the same five-year period (those withdrawals are made at the end of each year). Each has been bragging that they earned a 10% return on their investment. Explain how this can be true, given that Jane earned $12,210 in interest compared to Joe's $10,000.

Attachments
Purchase this Solution
Solution Summary

Using calls and puts; the business cycle and investing; forecasting stock prices.

Solution Preview

Please give details for the following questions.

1. Explain how puts and calls can be used to:
reduce risk - buying the right to purchase a stock (call option) at a certain price can protect against losses in a long position; if the stock drops below that price, you can exercise the option
increase portfolio yields (returns) - covered calls can increase returns; you get the price of call as well as any increase in your stock (up to the strike price)
speculate - selling a naked put means that you agree to buy a stock at a price lower than its current price. If the stock stays high, you keep the premium without having to buy any stock.

3. List a minimum of four fundamental factors to be considered when trying to ...

Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

View More Free Quizzes
Related BrainMass Solutions

  • Univariate time series modelling and forecasting

    if any of the three models truly represented the way stock market prices move, which could potentially be used to make money by forecasting future values of the series?

  • Forecast Analysis

    The Excel file Closing Stock Prices provides data for four stocks over a six-month period. a. Develop spreadsheet models for forecasting each of the stock prices using single moving average and single exponential smoothing. b.

  • What is an index

    Common examples of indices include: Stock Indices (average of stock prices that allows users and businesses to track how the market is performing) Dow Jones (an average of 30 stock prices), S&P 500 (an average of 500 stocks) Quantity Indices (

  • Stocks

    Develop a spreadsheet module for forecasting each of the stock prices using simple moving average and simple exponential smoothing. B.

  • How is business forecasting used?

    There are some practical uses of business forecasting. These include estimating quarterly sales. Such forecasts are important because they have an impact on the stock prices of the company.

  • Market Value Added, Synergy, Value Drives/Balance Scorecard, Maximizing Shareholder Value

    What is the inherent danger to stock prices in the requirement that management forecast future sales and earnings?

  • Finance AFN MCQs

    A forecasting approach in which the forecasted percentage of sales for each item is held constant. b. Funds that a firm must raise externally through short-term or long-term borrowing and/or by selling new common or preferred stock. c.

  • Rate of Return

    191867 Rate of Return and Impact Growth Rate Can Have on Stock Prices Company stock sells for 200 pesos per share and next year's dividend is 8.5 pesos. Security analysts are forecasting earnings growth of 7.5% per year for the next 5 years. a.

  • Forecasting time series based on Moving average

    461235 Forecasting time series based on Moving average Please provide tutorial help involving moving averages. Moving averages often are used to identify movement in stock prices.

View More Related Solutions