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Directions for the following five questions: Answer the following questions based on the information given below:
Abdul, Bikram and Chetan are three professional traders who trade in shares of a company XYZ Ltd. Abdul follows the strategy of buying at the opening of the day at 10 am and selling the whole lot at the close of the day at 3 pm. Bikram follows the strategy of buying at hourly intervals: 10 am, 11am, 12 noon, 1 pm and 2 pm, and selling the whole lot at the close of the day, Further, he buys an equal number of shares in each purchase. Chetan follows a similar pattern as Bikram but his strategy is somewhat different. Chetan’s total investment amount is divided equally among his purchases. The profit or loss made by each investor is the difference between the sale value at the close of the day less the investment in purchase. The “return” for each investor is defined as the ratio of the profit or loss to the investment amount expressed as a percentage.
On a “boom” day the share price of XYZ Ltd. keeps rising throughout the day and peaks at the close of the day. Which trader got the minimum return on that day?
Abdul gets the highest return since he buys all the shares at the start of the day.
Let Bikram and Chetan spend equal amounts of money. Since Chetan spends his money equally on all business, he would buy more of a shares at lower price and less shares at a higher price. On the other hand, Bikram buys an equal number of shares at each price. So, the return obtained by Chetan would be more than the return obtained by Bikram. Option a) is the correct answer.
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