BUS 415: Investment and Portfolio Management
SPRING 2011, AUBG

Quiz 1(a)

1. If you place a stop-loss order to sell 100 shares of stock at $55 when the current price is $62, how much will you receive for each share if the price drops to $50? A. $50 B. $55 C. $54.87 D. Cannot tell from the information given
Answer B. The broker will sell at current market price, after the first transaction at $55 or less.

2. You wish to sell short 100 shares of XYZ Corporation stock. If the last two transactions were at $34.12 followed by $34.25, you can sell short on the next transaction only at a price of: A. $34.12 or higher B. $34.25 or higher C. $34.25 or lower D. $34.12 or lower
Answer B.

3. If you buy 100 shares at $20 per share with 50% margin, the cash you must put in your brokerage account is _______________. A. $2,000 B. $1,500 C. $1,000 D. $500
Answer: C
50% = (100*20 – L) / (100*20)
Liability =1000
Initial Cash outlay = 1000

4. If you originally bought 100 shares at $20 per share with 50% margin, and the price of the security falls to $15 per share, your margin now is ____________________. A. 100% B. 67% C. 50% D. 33% E. 0%
Answer: D
50% = (100*20 – L) / (100*20) => Liability = 1000
Margin = (100*15 - 1000) / (100*15)
Margin = 33%

5. Suppose you short sold 100 shares of DIS at $40 per share, and that the broker required 50% margin. On the next day, the price of DIS goes down to $36 per share, while DIS pays a $0.20 per share dividend. What is your initial balance? What is the balance in your brokerage account after one day? After repaying the stock?

Initial Balance:
|Assets | | |Liabilities & Equity |
|Cash |4,000 |Short position