Question

You have just received $100,000 from me as a grant for an experiment. I want you to create a stock portfolio worth $100,000, i.e. 'buy' stocks worth $100,000. This is how you can 'buy' a stock in this experiment. Suppose you want to buy 100 stocks of Apple. Look up its symbol (Appl), and its closing price (Suppose that on Friday, Feb. 22, was 172.99). Now multiply 100 by $172.99. You just spent $17299.00 on this stock. Pick another stock and repeat until you have spent all the money.

You can only hold 'stocks' in your portfolio (no commodities such as gold, or bonds). Purchase your entire portfolio of stocks on one specific day. For example if you want to do that on Oct. 23, buy them all that one day. Look up the stock prices in the evening when the market closes. You can use the Internet for your research.

  "Yahoo Finance" and many other Internet websites allow you to put up a portfolio and monitor it, or change it for free. You can use such a website to set up your own portfolio. This way you will be able to see your gains and losses and when the time comes to sell your portfolio at the end of this semester, you can do so with ease.

In the following space answer the following 4 questions. Do not leave any out.

a. write the name of the stocks purchased and the date of purchase

b. how many stocks did you buy for each company? (For example, 10 IBM stocks for $100 each = 10 x $100 = $1000)

c. List the price of each stock you buy. (The total amount cannot exceed $100,000)

d. Why did you buy the stocks that you chose to include in your portfolio?

(Your portfolio should have at least three, and at most 10, kind of stocks, (e.g. Coca Cola, IBM, EXXON are three kind of stocks).   

You can change the mix of stocks only twice i.e. you can buy or sell your existing stocks only 2 times. Keep a record of your sale. You will sell your entire portfolio in the last week of classes. The objective of this portfolio is to maximize short-term gain. The person who makes the most money by the end of this semester will be a winner!

Answer 1

a) suppose we purchased :

• 100 stocks of coca cola whose closing price on feb 25 was $199.99
• 50 stocks of Nestle Co. whose closing price on feb 25 was $150
• 200 stocks of IBM whose closing price on feb 25 was $166
• 100 stocks of Apple whose closing price on feb 25 was $393.01

b) Now, total stocks we purchased are as follows:

{$199.99 * 100 = $19999 }+ { $150 * 50 = $ 7500 } + {$166 * 200 = $ 33200 } + {$393.01 * 100 = $39301 }

This amount shouls be less than $100,000 as we have received this much amount only.

c) Price of each stock we received are

• $19999
• $7500
• $33200
• $39301

d) These stocks have been bought because of their high value demand in the market. Also, one thing should always be kept in mind while purchasing the stocks is the value of the stock in the market.