Question:
Pistacchio finds 100 million dollars in his pants pocket and decides to invest it. He buys shares for 99 million dollars and keeps 1 million dollars in cash (that is, at the beginning of the day he has 99% in shares and 1% in cash).
However, the stock market goes down so at the end of the day the percentage of shares in your portfolio is 98%.
How much are Pistacchio’s total investments (shares + cash) worth at the end of the day?
Options:
- 98 million dollars.
- 99 million dollars.
- 96.6 million dollars.
- None of the above, I write my answer in the comments .
- No idea, but how honest is the person who irons Pistacchio’s pants !?
Answer:
(4) The answer is extremely simple if one, instead of thinking about stocks, thinks about cash (which did not change). If the stocks are now 98% of the portfolio, it means that the cash is 2%. Given that a million dollars is 2% of the total value of the investments, by simple rule of three the total value of the investments should be 50 MM dollars.
