Reference no: EM132052945

One month ago Google stock price is $800 per share and Netflix stock price is $120 per share. You invested $0.72m in Google and $0.6m in Netflix. Today Google stock price rises to $840 per share and Netflix stock price falls to $112 per share. Now you want to adjust your portfolio by selling one stock and buying the other stock while not changing the whole portfolio value. Ignore any transaction fees and dividends. Consider two scenarios as follows.

(i) Following your insight as an investor, how much dollars would you move from Google to Netflix? If you want to transfer your money from Netflix to Google, express the dollar amount as a negative number and name it as $X1. (This question is simply asking your own judgment, and so you won’t get any point or penalty from this question. However, write down your answer somewhere (not on the answer sheet at Blackboard). You need it for the next question.)

(ii) Suppose you accidentally liquidate your portfolio today and now you have only cash. If you are a rational and consistent investor, how much would you invest in Google today? Name it as $X2. (This question is simply asking your own judgment, and so you won’t get any point or penalty from this question. However, write down your answer somewhere (not on the answer sheet at Blackboard). You need it for the next question.)

Question: What is the sum of your answers from (i) and (ii), that is, X1+X2?