Black Portfolio Price 639
8
Year Bust Normal Boom 1--17 0.19 0.8 0.01 Black Portfoli o Price 639 White Portfoli o Price 2235 Yield rate=8%
description
Yield rate=8%. Black Portfolio Price 639. White Portfolio Price 2235. Yield rate=8%. Black Portfolio Expected annual return = 0.19*1000+0.8*100+0.01*(-20000) = 70 White Portfolio Expected annual return = 0.19*(- 500)+ 0.8*300+0,01*10000 = 245 - PowerPoint PPT Presentation
Transcript of Black Portfolio Price 639
Year Bust Normal Boom
1--17 0.19 0.8 0.01
Black Portfolio
Price
639
White Portfolio
Price
2235
Yield rate=8%
Year Bust Normal Boom
1--17 0.19 0.8 0.01 Yield rate=8%
Black Portfolio Expected annual return = 0.19*1000+0.8*100+0.01*(-20000) = 70
White Portfolio Expected annual return = 0.19*(-500)+0.8*300+0,01*10000 = 245
NPV of Black Portfolio = -639+70*PVIFA(8%, 17)= 0NPV of White Portfolio = -2235+245*PVIFA(8%, 17) = 0
State of Economy Black Portfolio White PortfolioBoom -20000 10000
Normal 100 300Bust 1000 -500
State of Economy
Black Portfolio White Portfolio
Boom -20000 10000Normal 100 300
Bust 1000 -500
Year Bust Normal Boom
1--17 0.5 0.5
Black Portfolio Expected annual return = 0.5*1000+0.5*100 = 550
White Portfolio Expected annual return = 0.5*(-500)+0.5*300 = -100
Year 1—17
NPV of Black Portfolio = 550*PVIFA(8%, 17)= 5017
NPV of White Portfolio = -100*PVIFA(8%, 17) = -912
Normal 50%
Bust50%
BUST
20%
NORM
80%
Year 1--13
Year 14--17
BOOM
20%
BUST80%
Year Bust Normal Boom
1--13 0.2 0.8 14--17 0.8 0.2
State of Economy Black Portfolio White PortfolioBoom -20000 10000
Normal 100 300Bust 1000 -500
Black Portfolio Year 1—13 Expected annual return = 0.2*1000+0.8*100 = 280
Year 14—17 Expected annual return = 0.8*1000+0.2*(-20000) = -3200
White Portfolio Year 1—13 Expected annual return = 0.2*(-500)+0.8*300 = 140
Year 14—17 Expected annual return = 0.8*(-500)+0.2*10000 = 1600
Year 1—17 NPV of Black Portfolio = 280*PVIFA(8%, 13)+(-3200)*PVIFA(8%, 4)/1.0813 = -1684
NPV of White Portfolio = 140*PVIFA(8%, 13)+1600*PVIFA(8%, 4)/1.0813 = 3055
Real Market SituationYear Bust Normal Boom
1--13 √
14--16 √ 17 √
State of Economy Black Portfolio White PortfolioBoom -20000 10000
Normal 100 300Bust 1000 -500
Black PortfolioPrice=638.5Year 1—13 Annual return=100 Year 14—16 Annual return=1000Year 17 Annual return=-20000
NPV = -638.5+100*PVIFA(8%, 13)+1000*PVIFA(8%, 3)/1.0813-20000/1.0817=-4306
White PortfolioPrice=2234.8Year 1—13 Annual return=300Year 14—16 Annual return=-500Year 17 Annual return=10000
NPV = -2234.8+300*PVIFA(8%, 13)-500*PVIFA(8%, 3)/1.0813+10000/1.0817=2365
