FINA2320/2802DE Fall 2015: Homework #1 Solutions 1. Buying on margin case: (a) The initial value of stock is $75 × 1000 = $75,000. So investor should using invest: Equity in account = $75,000 × Initial Margin = $75,000 × 50% = $37,500 And investor should borrow from the broker: Liability = $75,000 - 37,500 = $37,500 The initial balance sheet looks like this: Assets Liabilities and Owner’s Equity Value of stock $75,000 Loan from broker $37,500 Equity $37,500 (b) (i) If the stock price
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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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$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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c3c3 Student: ___________________________________________________________________________ 1. A purchase of a new issue of stock takes place A. in the secondary market. B. in the primary market. C. usually with the assistance of an investment banker or dealer. D. a and c. E. b and c. 2. The trading of stock that was previously issued takes place A. in the secondary market. B. in the primary market. C. usually with the assistance of an investment banker. D. a and c. E. b and c.
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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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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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Chapter 1 4. Although we stated that real assets comprise the true productive capacity of an economy, it is hard to conceive of a modern economy without well-developed financial markets and security types. How would the productive capacity of the U.S. economy be affected if there were no markets in which one could trade financial assets? Financial assets are the claims on real assets. By involving in the financial market, companies find it more accessible to the external financial resources
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FIN-672 Securities Analysis & Portfolio Management Professor Michel A. Robe Practice Set #1 and Solutions. What to do with this practice set? To help MBA students prepare for the assignment and the exams, practice sets with solutions will be handed out. These sets contain select worked-out end-of-chapter problems from BKM4 through BKM6. These sets will not be graded, but students are strongly encouraged to try hard to solve them and to use office hours to discuss any problems they may have
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Chapter 1 A Brief History of Risk and Return 6. Cherry: RA = 8.60% Var = 1/4[(.17 – .086)2 + (.11 – .086)2 + (–.02 – .086)2 + (.03 – .086)2 + (.14 – .086)2] = 0.00623 Standard deviation = (0.00623)1/2 = 0.0789 or 7.89% Straw: RB = 10.20% Var = 1/4[(.16 – .102)2 + (.18 – .102)2 + (–.06 – .102)2 + (.01 – .102)2 + (.22 – .102)2] = 0.01452 Standard deviation = (0.01452)1/2 = 0.1205 or 12.05% 7. The capital gains yield is ($49 – 56)/$56 = –.1250 or –12.5% (notice
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