Q4: An investor invests $1000 a month, on average, in a stock market security. Because the investor must wait for good "buy" opportunity, the actual time of purchase is random. The investor usu- ally keeps the securities for about 3 years on the average but will sell at random times when a good "sell" opportunity presents itself. Although the investor is generally recognized as a shrewd stock market player, past experience indicates that about 25% of the securities decline at about 20% a year. The remaining 75% appreciate at the rate of about 12% a year. Estimate the inves- tor's (long-run) average equity in the stock market. Hint: use the average number of securities in the market.
Q4: An investor invests $1000 a month, on average, in a stock market security. Because the investor must wait for good "buy" opportunity, the actual time of purchase is random. The investor usu- ally keeps the securities for about 3 years on the average but will sell at random times when a good "sell" opportunity presents itself. Although the investor is generally recognized as a shrewd stock market player, past experience indicates that about 25% of the securities decline at about 20% a year. The remaining 75% appreciate at the rate of about 12% a year. Estimate the inves- tor's (long-run) average equity in the stock market. Hint: use the average number of securities in the market.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Q4:
An investor invests $1000 a month, on average, in a stock market security. Because the investor
must wait for good "buy" opportunity, the actual time of purchase is random. The investor usu-
ally keeps the securities for about 3 years on the average but will sell at random times when a
good "sell" opportunity presents itself. Although the investor is generally recognized as a shrewd
stock market player, past experience indicates that about 25% of the securities decline at about
20% a year. The remaining 75% appreciate at the rate of about 12% a year. Estimate the inves-
tor's (long-run) average equity in the stock market.
Hint: use the average number of securities in the market.
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