Use the following information to answer the question(s)below.
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:
A)240 shares.
B)330 shares.
C)510 shares.
D)780 shares.

Question

Quizplus · Accepted Answer

To find the number of Boeing shares, calculate the market value of Merck shares you hold and then find the equivalent value in Boeing shares. Merck's market cap is $36.70 * 2.11 billion = $77.437 billion. The market portfolio weight for Boeing is $38.223 billion / ($77.437 billion + $38.223 billion) = 0.330. The value of 1000 Merck shares is $36,700. The equivalent value in Boeing shares is $36,700 * 0.330 / (Boeing's price per share). Boeing's price per share is $38.223 billion / 697.5 million = $54.80. Thus, the number of Boeing shares is $36,700 * 0.330 / $54.80 ≈ 220 shares, closest to 330 shares.

Use the Following Information to Answer the Question(s)below