Lecture 3 1. Assume you purchased 700 shares of XYZ common stock on margin at $50 per share from your broker. If the initial margin is 65%, how much did you borrow from the broker, what is the margin? 2. You purchase 100 shares at $60 per share and margin = 50%. Suppose stock rises to $80/sh (increase of 33%). What is your return? Suppose stock drops to $40/sh (decrease of 33%). What is your return? 3. Investor opens a brokerage account and purchases 300 shares of XYZ at $40 per share. She borrows
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Question 4 : According to the previous analysis (question 3), we can assume that the drop in the stock price by 23% was due to the performance of the company during its fats expansion stage. In order to rise the market price, the company have to restore its performance by providing a good return on equity to its shareholder. To do it we have to first observe the ROE’s break down : ROE : Operating ROA + Spread x Net Leverage Because of the number of covenant which restrict the magnitude of
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INFORMATION FOR THE NEXT THREE PROBLEMS Jackie has a margin account with a balance of $150,000. If the initial margin deposit is 60 percent and Turtle Industries is currently selling at $50 per share: (a) 1 How many shares of Turtle can Jackie purchase? (b) 2 What is Jackie's profit/loss if Turtle’s price after one year is $40? (d) 3 If the maintenance margin is 25 percent, to what price can Turtle Industries fall before Jackie receives a margin call? USE THE FOLLOWING INFORMATION FOR THE
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The Saturday Paper The Monthly The Quarterly Essay ECONOMICS In the Eye of the Storm The Collapse of Storm Financial Paul Barry By mid March, America’s champion fraudster Bernie Madoff will have served two years of a 150-year prison sentence for stealing billions of dollars from his rich and famous investors. As he chalks up the anniversary on his North Carolina jail wall, our corporate cop, the Australian Securities and Investments Commission (ASIC), will have barely begun its action against
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American Finance Association Limited Arbitrage in Equity Markets Author(s): Mark Mitchell, Todd Pulvino, Erik Stafford Source: The Journal of Finance, Vol. 57, No. 2 (Apr., 2002), pp. 551-584 Published by: Blackwell Publishing for the American Finance Association Stable URL: http://www.jstor.org/stable/2697750 Accessed: 08/01/2010 15:26 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms
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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%
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$50 per share is a total cost of $5000. At 50% margin, the investor must put up $2500, resulting in a gross profit percentage relative to equity of $1000/$2500 = 40% At 40% margin, the investor must put up $2000, resulting in a gross profit percentage relative to equity of $1000/$2000 = 50% At 60% margin, the investor must put up $3000, resulting in a gross profit percentagerelative to equity of $1000/$3000 = 33.3% 5-4. The initial margin is 50% of $6000, or $3000. The other $3000 is borrowed
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The primary purpose of marking-to-market or the process of updating a traders margin accounts to account for gains or losses incurred over the trading day is __________. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (A) | protect the clearing house (guarantor) insuring traders fulfill agreements | (B) | to help fund clearing house operations via interest earned on margin accounts | (C) | to create a mechanism of matching buyers to sellers | (D)
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Homework 1: Part 1: H Partners and Six Flags Case Study. Following questions are based on the case study. 1. Briefly describe the reasons for Six Flag’s deteriorating performance. Do you believe the core business is sound? (Note-I am not looking for a very long answer. The reasons for bankruptcy will play a big role in your decision to invest or not invest in a company. For instance: a business cycle downturn vs new research that shows company’s products are harmful for people (think
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