Damn the Dow
Zaux and Cam each have $1000 to invest in a particular stock. They are given inside information that in the coming week, the price will go up by 10% on Monday, then down by 10% on Tuesday, up by 10% on Wednesday, down 10% on Thursday. Friday is a bank holiday and the market is closed.
Zaux buys the stock at the opening bell on Monday and sells at the closing bell on Wednesday. Cam buys at the opening bell on Wednesday and sells at the opening bell on Thursday. Who ends up richer?
posted by Ross at
12:07 PM
15 Comments:
Zaux by 8 dollars ?
Looks like I made $89.00 and Ross lost $10.00 ... I hope :)
This post has been removed by the author.
This post has been removed by the author.
zaux wins $100 on monday
then he loses $110 on tuesday (10% of the money he had before this day), so he has $990 on tuesdays closing bell
on wednesday he wins 10% of this $990, so he finally has $1089
cam simply wins 10% of the beginning $1000, so in the end he has $1100, wich is $11 more than zaux.
but what makes me think, is that cam sells at thursday opening bell, which usually should be the same as if he sold on wednesdays closing bell, so i wonder why ross wrote it like this, and i think there must be a trick in this question.
Oops, I lost a decimal point somehow, that 8 was a rounded up 7.9, so I'll change my answer to Zaux by $79
Carc is right ...Ross makes $11 more than I do .... I misread the question and thought Ross sold at closing on Thursday.
I considered that, but made some stupid allowance for increased stock price when Cam went to purchase his stock, so he got less for his money ... or something ?
Starting with Zaux...Invests on Monday.
Starts with 1000
Monday-Raises by 10%. Has 1100
Tuesday- down by 10%. Has 990
Wednesday- Up by 10%. Has 1089.
So he invested $1000 and ends up with $1089. Not bad.
Now lets look at Cam.
Invests on Wednesday
Starts with 1000
Wednesday- raises by 10%. Has 1100
Thursday- Down by 10%. Has 990.
So he invested $1000 dollars and ends up with $990.
Final counts:
Zaux - $1089
Cam - $990
Zaux ends up richer :)
Zaux $1000 Mon start. Raises to $1100 at Mon close. Starts Tue open with $1100, which drops to $1100*0.9 = $990 at Tue close. Wed open he has $990 which rises to $990*1.1 = $1089 Wed close.
Cam buys $1000 on Wed start. At end of day he has $1000 *1.1 = $1100. He sells at Thursday start, so has $1100.
So Cam gains $100 and Zaux gains $89.
So they were both idiots, they could each have made $210.
Initial capital does not matter as long as they are equal. Call the inital capital= C
Assume all stock is purchased and sold as soon as they want, thus stock prices do not vary from desired time of sale or purchase
Zaux= C*1.1*0.9*1.1=C*1.1^2*0.9
Cam=C*1.1
Cam/Zaux=C*1.1/(C*1.1^2*0.9)
Cam=1/(1.1*0.9)
Cam=1/0.99= 1.01010101......
Since Cam/Zaux >1, Cam made more money
Cam
Insider Trading?
Zaux sold it for the same price he bought it for and Cam sold it for 10% less. =)
err...can I please have the number of the supplier of all this inside information? I promise to share the profits ;)
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