Question

Dale the farmer and his brother Jake decide to sell the family farm. They will use the proceeds to invest in the stock market. As they can not agree on an investment choice, they split their money. Dale buys stock “bull” with his half million “bull” currently sells for $45 per share

STEP BY STEP SHOW:

A) What is Dale’s return if the stock price after one year is 35,43, or 53 dollars per share?

B) If Dale decides that he wants to earn money faster and his broker will allow him to buy on the margin. His broker requires a 50% initial margin and he charges a 3% annual fee on the loan amount. If Dale invests all that he can, what is Dale’s return if the stock price after one year is 35,43, or 53 dollars per share?

C) Jake is certain his brother is always wrong so he decides to short “bull”. His broker requires a 50% initial equity position, which does not gain interest. What is Jake’s return if the stock price after one year is 35,43, or 53 dollars per share?

Answer #1

1) Dale return after 1 year

Stock price , 35 = (35-45)/45 = -22.22%

Stock price , 43 = (43-45)/45 = -4.44%

Stock price , 53 = (53-45)/45 = 17.78%

2)With 0.5m in cash and initial margin of 50%, Dale can buy stocks worth 1m with 0.5m in debt.

Total no. of Bull shares he bought = 1m/45 = 22,222

At 35, total loss = (35 - 45) x 22,222 - 3% x 500,000 = -237,220

At 43, total loss = (43 - 45) x 22,222 - 3% x 500,000 = -59,444

At 53, total profit = (53 - 45) x 22,222 - 3% x 500,000 = 162,776

3) Jake can also take position of 1m with 0.5m in cash and 50% margin. So, he short 22,222 shares of Bull.

At 35, total profit = -(35 - 45) x 22,222 = 222,220

At 43, total profit = -(43 - 45) x 22,222 = 44,444

At 53, total loss = -(53 - 45) x 22,222 = -177,776

1-You recently sold 50 shares of Microsoft stock to your brother
at a family reunion. At the reunion your brother gave you a check
for the stock and you gave your brother the stock certificates.
Which of the following best describes this transaction? *
A. This is an example of a direct transfer of capital.
B. This is an example of a primary market transaction.
C. This is an example of a money market transaction.
D. This is an example...

1-You recently sold 50 shares of Microsoft stock to your brother
at a family reunion. At the reunion your brother gave you a check
for the stock and you gave your brother the stock certificates.
Which of the following best describes this transaction? *
A. This is an example of a direct transfer of capital.
B. This is an example of a primary market transaction.
C. This is an example of a money market transaction.
D. This is an example...

You decide to sell short 100 shares of Charlotte Horse Farms
when it is selling at its yearly high of $53. Your broker tells you
that your margin requirement is 55 percent and that the commission
on the purchase is $150. While you are short the stock, Charlotte
pays a $2.25 per share dividend. At the end of one year, you buy
100 shares of Charlotte at $42 to close out your position and are
charged a commission of $140...

You decide to sell 1,000 shares of Marston Industries short when
it is selling at ¢35. Your broker requires an initial margin
deposit of 55 percent with no commission on the sale and a 6
percent interest rate on your margin loan. While you are short,
Marston Industries pays a 75 pesewas per share dividend. At the end
of one year you buy Marston Industries shares to cover your short
sale at ¢30 and are charged a commission of ¢15....

An investor buys $16,000 worth of a stock priced at $20
per share using 60% initial margin. The broker charges 8% on the
margin loan and requires a 35% maintenance margin. If the stock is
sold at $23 per share in one year, what was the investor’s rate of
return?
Input your answer as a percentage with 2 decimal places,
without the %. For example, 20.27.

You just bought 200 shares of a stock priced at $48 per share
using 50% initial margin. The broker charges 4% annual interest
rate on the margin loan and requires a 30% maintenance
margin. One year later stock price dropped to 31 and you
recieved margin call, to restore your margin to the initial margin
level, how much would you need to deposit?
Answer ___+/- ____
You sell short 100 shares of company A which are currently
selling at $32 per...

Mr. Sam opened an account to short-sell 50,000 shares of MSFT at
$60 per share. Assume that the margin account pays no interest, and
that the initial margin requirement was 60%. 1. What is the initial
margin invested by Mr. Sam? 2. If after one year, the price of MSFT
has risen from $60 to $66, and the stock has paid a dividend of $1
per share. a) What is the remaining margin in the account in
dollars and as...

You short-sell 50 shares of XYZ stock at $100 per share. Your
broker's initial margin requirement is 50% of the value of your
short position. You put up cash to satisfy the initial margin
requirement.
a) What will be your rate of return (after 1 year) if XYZ stock
sells at $110 a share? Assume that you do not earn any interest on
your funds in the margin account and that the stock pays a dividend
of $1.50 a share...

An investor buys Bank of America (BAC) shares at $20 per share
using $60,000 of his own money. Without using a margin loan, he can
buy 3,000 shares, using 60% initial margin loan he can buy 5,000
shares. Calculate his return on his initial investment ($60,000) in
the two cases no margin and with margin purchase.
A. Price is $24
b. Price is $18
c.A second investor shorted 1,000 shares of BAC at the $20
price.

Due to COVID-19, Zeina opened an account to short-sell 500
shares of Eastern Tobacco (EAST). The initial margin requirement is
60%. A year later, the price of Eastern Tobacco (EAST) has fallen
from EGP 18 to EGP16, and the stock has paid a dividend of EGP 0.25
per share. Zeina is paying to her broker commission per share 0.5
EGP.
a.What is the remaining margin (equity) in the Zeina’s account
after the price decrease of Eastern Tobacco (EAST)?
b.What is...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 5 minutes ago

asked 5 minutes ago

asked 8 minutes ago

asked 9 minutes ago

asked 15 minutes ago

asked 15 minutes ago

asked 15 minutes ago

asked 29 minutes ago

asked 30 minutes ago

asked 30 minutes ago

asked 35 minutes ago

asked 39 minutes ago