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Violates the self-financing condition

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Suppose that the riskfree rate r = 0, the stock price today is $100, and decreases to $90 next year. Consider a portfolio that holds 10 shares of stocks and borrows $500 today. Which of the following portfolio composition next year violates the self-financing condition?

(A) The portfolio next year invests $400 in riskfree bond.

(B) The portfolio next year holds 2 shares of stocks and invests $220 in riskfree bond.

(C) The portfolio next year holds 8 shares of stocks and borrows $300.

(D) The portfolio next year shorts 10 shares of stocks and invests $1300 in riskfree bond.

Reference no: EM133123652

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