Question

9. A customer sells short 100 shares of XYZ at $50 per share. The credit balance in the customer's

account after the customer deposits the required margin is:

a. $2,500

b. $5,000

c. $7,500

d. $10,000

10. How many semi-annual periods would it take for a $2,000 deposit to grow to $6,798 at 12%

compounded semi-annually?

a. 17

b. 19

c. 21

d. 25

e. none of the above

11. Charlie Stone wants to retire in 35 years (he is currently 22) and be able to withdraw $250,000

per year for 15 years. Charlie wants to receive the first payment at the end of the 35th year. Using

an annual interest rate of 10%, how much should Charlie deposit at the end of each of the 35 years

in order to achieve his goal?

a. $5,245.67

b. $10,765.32

c. $26,899.41

d. $7,717.63

e. none of the above

Answer 1

9). Credit balance = proceeds of sale + margin required on the sale

= (100*50) + 50%*(100*50) = 7,500 (Option C) (Assuming a margin requirement of 50% since margin is not given in the question)

10). Let the number of semi-annual periods be n. Then,

future value = amount*(1+ semi-annual interest rate)^n

6,798 = 2,000*(1+6%)^n

n = ln(6,798/2,000)/ln(1+6%) = 20.98 or 21 periods (Option C)

11). Amount required at the end of 35 years: PMT = 250,000; N = 15; rate = 10%, solve for PV.

PV = 1,901,519.88

Amount required to be invested p.a. for 35 years: FV = 1,901,519.88; N = 35; rate = 10%, solve for PMT

Annual investment = 7,016.05 (Option E)