Question

Suppose the market consists only of Merck (MRK) and Boeing (BA). Merck stock is trading for $36.70 per share with 2.11 billion shares outstanding while Boeing has 697.5 million shares outstanding and a market capitalization of $38.223 billion. Assume that you hold the market portfolio. If you hold 1000 shares of Merck, then the number of shares of Boeing that you hold is closest to:

Answer 1

670 shares

Step-by-step explanation:

The assumption here is that since Merk and Boeing constitutes the entire market portfolio,it is expected that the investor would invest the same dollar amount in each stock.

The amount invested in Merck is the number of shares multiplied by share price.

Merck share price is $36.70,invariably $36,700 ($36.70*1000) was invested in Merck.

Number of shares in Boeing=amount invested in Merck/Boeing share price

boeing share price=$38.223 billion/697.5 million shares=$54.8

Number of shares in Boeing=$36,700/$54.8=670 shares