Question

Company XYZ’s stock price for the following dates: May 12 2019               42 August 12 2019              &n

Company XYZ’s stock price for the following dates:

May 12 2019               42

August 12 2019                       44

November 12 2019      49

May 12 2020               46

Investor A bought on May 12 2019 and sold today, with zero margin (i.e., leverage ratio 1).

Investor B bought on August 12 and sold today, also zero margin.

Investor C bought May 12 2019 and sold August 12, posting 30% margin.

Investor D sold short November 12 and bought back (covered short) today, posting 50% margin.

XYZ pays no dividend.  The financing rate (and earnings rate on collateral) is 2.5%.  

What is each invertor’s ROI?  2 points each

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          Answer #1

          Investor A:

          Buy price-42

          Sell price-46

          Profit= 46-42/42

          =9.52%

          Investor B:

          Buy price-44

          Sell price-46

          Profit= 46-44/42

          =4.76%

          Investor C:

          Buy price-42

          Sell price-44

          Margin 30%

          So using Margin investor c can purchase 3 share

          Profit= (44-42)*3/42

          =14.29%

          Investor D:

          Short Nov -49

          Bought back-46

          Margin-50%

          usig margin Investor D can purchase 2 share

          Profit= (49-46)*2/42

          =14.29%

          If consider Financing Rate:

          Investor A : 9.52-2.5 = 7.02%

          Investor B : 4.76-2.5 = 2.26%

          Investor C : 14.29-2.5 = 11.79%

          Investor D : 14.29-2.5 = 11.79%

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