Wednesday, August 31, 2011

Risk of Assets


Let us look at the price of Soybeans as one of the agriculture commodities and price of Gold during the period of one year (From Aug 31, 2010 to Aug 31, 2011) as follows:

Date                                          Aug 31, 2010                            Aug 31, 2011   
Price of Soybeans                   1,045.25(¢ / bushel)                    1,457.00 (¢ / bushel)
Price of Gold                          1247.29 ($ / troy ounce)              1,829.80 ($ / troy ounce)   
                   
If you have stored one troy ounce of Gold, your real rate of return will be: ra = 46.7%

But if you have invested on Soybeans during the period of one year, definitely you can earn minimum 8% of  your initial investment which is equal to 9978.32 cent (1247.29 * 8%  * 100 ) as your cash earning or cash dividend.  To calculate the rate of return for Soybeans, we have:

V(t-1) = 124729  cent 
Amount of bushel = 124729 / 1045.25 = 119.33 bushel
V t = 119.33 * 1,457 = 173862.86 cent
ra = 9978.32+ (173862.86 -124729) / 124729  =  47.4%

As you can see, the risk of two assets is approximately the same.

Of course, soybean oil alone accounts for about ninety percent of all fuel stocks in the US.

“Biodiesel produced from soybeans produces more usable energy and reduces greenhouse gases more than corn-based ethanol, making it more deserving of subsidies, according to a study being published this month in The Proceedings of the National Academy of Sciences.
Now, I willing to know if above mentioned is a good news or bad news.