Question

# 12. If you think that the price of a share will fall, which trade should you...

12. If you think that the price of a share will fall, which trade should you undertake?

a. margin purchase

b. limit order

c. day order

d. short sale

e. stock purchase

13. If a stock is purchased for \$14, sold for \$22.50 and pays \$1.12 in dividend, what is the holding

period return?

a. 1.12

b. 1.134

c. 1.69

d. 2.12

e. none of the above

14. If Joe Smith sells short 90 shares of XYZ at 31.25 per share and six months later is able to

purchase the shares at 29 each, ignoring brokerage fees, he would

a. earn a total profit of 202.5

b. lose a total of 2325

c. earn a profit of 2,812.5

d. lose a total of 202.5

e. none of the above

15. The equation [1/(1+r)

t

]C

t

provides

a. the compound value of a series of payments with a single interest rate.

b. The compound value of a series of payments with a series of interest rates.

c. The compound value of a single payment.

d. The present value of a series of payments with a single interest rate.

e. The present value of a single payment.

Solution:

12. If you think that the price of a share will fall, which trade should you undertake?

When share price is expected to fall then we should short sell. Means first sell the share at higher price then buy the share at lower price

Correct option is D) Short sell

13. If a stock is purchased for \$14, sold for \$22.50 and pays \$1.12 in dividend, what is the holding

period return?

Holding period return = (Selling price + Income earned ) / Purchase price = (22.50 +1.12) / 14.00 = 1.69

Correct option is C ) 1.69

14. If Joe Smith sells short 90 shares of XYZ at 31.25 per share and six months later is able to

purchase the shares at 29 each, ignoring brokerage fees, he would

Total profit =( Selling price - Purchase price ) * Quantity = (31.25 - 29 ) *90 = 2.25*90 = 202.50

Hence correct option is A ) Earn a profit of 202.50

15. This question is not clear. Kindly post the equation correctly

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