Alternative 1: Invest $20000 in the NewestHighTech.com when it goes public.
This is a very good investment option for Dara. It is not as conservative as the investment choices that she’s made in the past. There is an element of risk when an investor puts their cash into a one year old company that has had some favorable press when it received its early stage financing and, then more good press when its chips were accepted by a major cell phone manufacturer. The risk with a new company is that it may not be able to fulfill its orders, or the company that accepted its chips will have small orders. Growing pains are always risky with a new company. Overall, this investment option is in line with what Dara wants to accomplish.
This is a risky option at this time because the Casino may not get their permit. If the Casino does not get its permit, then the money invested here will be worthless in the event that Dara has to endure a short sale. If there is a short sale, Dara’s return will be pennies to the dollar. This could be a significant loss of her $20000. It’s clear that Dara believes that she is now a savvy investor, and this may seem like a good, more risky option for her cash, however, with no knowledge about the potential for a permit, it is unclear if she would have a positive return on investment.
Alternative 3: Sell casinos short at $54 in anticipation that the company’s fortune will change for the worse.
This is a risky option because timing is everything with short sales. There is no guarantee that Dara would be able to recover every dollar that she invested. Short sales rely on the appetite of banks to absorb a business that is in trouble. Why would Dara want to get into a suspicious situation like this one?
Alternative 4: Wait to see what happens with the casino permit and then decide whether to buy or short sell the casinos international stock.
An investment in the unknown is always risky. There is not enough data to substantiate that Dara would ever have an opportunity with this alternative. If the Casino doesn’t get its permit, then the business will be a failure and the shares will be worth nothing. If the permit is granted, even then, there is no guarantee that the Casino will be successful. What if the river floods? What if there is already an existing Casino on the same river with an established client base? This is not a sound investment option for Dara.
Question a.
Based on the limited data and background presented to Dara, the best investment option for her is the high tech stock. Wireless technology is on the rise; more applications are being developed for wireless technology and it is the way of the future. Although more risky than what Dara has been used to in the past, this is the best way for Dara to achieve her new investment objectives.
