Answer:
The option A is correct.
Explanation:
Solution
In this example, i have $60
The stock of Google cost $10/share
The Bing stock costs $5/share
Here i have three options to pick from, which are as follows:
Half of your money will be spent on Google and half on Bing, Spend all your money on Bing stock, and Spend all your money on Google stock.
Now,
If i do spend all my money only on Bing stock, my total shares would be computed as follows:
Total shares = Total money/Per stock price = $60/$5 = 12 shares.
The bing stock can either be $12 or $8 stock.
So,
When it is at $8 per stock, it will be $8 * 12 shares =$96 (My returns)
When it is at $12 per stock, it will be $12* 12 shares =$ 144 (My returns)
If i spend all my money on Google stock ($30 + $30) and half on bing
The $30 on Google stock will give $30/$10 = 3 shares
For Bing it will be $30/$5 = 6 shares
When Bing stock prices is at 8$/stock, Google stock price will be $30/stock
So,
($30, 3 shares ) + ($8 * 6 shares)
= $90 + $48 = $138
Thus,
When Google stock prices are $10/stock. Bing stock prices will be at $12 per stock.
Which becomes,
= ($10 * 3 shares) + ($12 * 6 shares)
= $30 + $72 = $102
Because am a risk taker, i will go for more better options that will be safer.
So, if i buy all shares for Bing or Google, there is a possibility that i will have lower returns ($60 and $96) but when i buy half each of them, there will be no risk of lower returns.
Therefore, the option A is correct.
