Instructions

Two traders, Chetan and Michael, were involved in the buying and selling Of MCS shares over five trading days. At the beginning of the first day, the MCS share was priced at Rs 100, while at the end of the fifth day it was priced at Rs 110. At the end of each day, the MCS share price either went up by Rs 10, or else, it came down by Rs 10. Both Chetan and Michael took buying and selling decisions at the end of each trading day. The beginning price of MCS share on a given day was the same as the ending price of the previous day. Chetan and Michael started with the same number of shares and amount of cash, and had enough of both. Below are some additional facts about how Chetan and Michael traded over the five trading days.

• Each day if the price went up, Chetan sold 10 shares of MCS at the closing price. On the other hand, each day if the price went down, he bought 10 shares at the closing price.

• If on any day, the closing price was above Rs 110, then Michael sold 10 shares of MCS, while if it was below Rs 90, he bought 10 shares, all at the closing price.

Question 37

If Michael ended up with Rs 100 less cash than Chetan at the end of day 5, what was the difference in the number of shares possessed by Michael and Chetan (at the end of day 5)?

Solution

The above table includes the values of the share price at the end of each day. Chetan and Michael column shows the number of shares at the end of 5th day with Chetan and Michael respectively. (-10 means he has sold 10 shares, +10 means he has bought 10 shares)

there are 10 different possible cases according to the initial and final share price. 

Please note that Chetan will always be having -10 shares(10 shares sold) and 1300 as cash. 

This is because Chetan buys for every fall in price and sells for every rise in price. But the fluctuation in share price is constant as it starts from 100 and closes at 110 on day 5. So, in total chetan will always sell 10 shares in all 5 days combined.

As chetan has sold 10 shares , he'll get 110*10 =1100 cash because of it in every case. Also chetan earns Rs. 200 in every case because of buying at low and selling at high. So total cash chetan will always have after 5 days = 1100+200 =1300.

The question asks about the case where Michael ended up with Rs 100 less cash than Chetan at the end of day 5.

So we have to look for the case where Michael has 1200 cash which is only possible when Michael has -10 number of shares in the end of day 5 and also has made profit of Rs. 100.

This is possible in case 7 as Michael has sold the shares at rs 120 but did not sell those shares as price never went below 90.

In the end Michael will have -10 shares at a price 110 which is Rs. 10 less than the price he sold at. 

So he makes profit of 100 rs through it and will have the cash of 1100 through the sold shares.
Their difference in 7th case is 1300-1200=100

Also, in this case they have same number of shares sold at the end of the 5th day. So E is the answer.

Video Solution

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