The Price of BHP Is $30 Per Share and That

question 17

Multiple Choice

The price of BHP is $30 per share and that of RIO is $50 per share. The price of BHP increases to $35 per share after one year and to $40 after two years. Also, shares of RIO increase to $60 after one year and to $70 after two years. If your portfolio comprises 100 shares of each security, what is your portfolio return in year 1 and year 2? Assume no dividends are paid.

• A) 18.75%, 15.79%
• B) 18.01%, 14.52%
• C) 18.62%, 17.75%
• D) 19.97%, 17.85%

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Definitions:

Loss-Minimizing

A strategy or position where a firm aims to reduce its losses to the lowest possible level under adverse conditions, often by adjusting production.

Zero Economic Profits

Zero economic profits occur in a competitive equilibrium when firms earn just enough revenue to cover their total costs, including the opportunity costs.

Short Run

A period of time during which at least one of a firm's inputs is fixed, limiting its ability to increase production.

Long Run

A period in economics in which all factors of production and costs are variable, allowing for full adjustment to changes.