1. Miss V is bullish about the stock of Ghana Commercial Bank (GCB). She is very confident in the five-year strategic plan announced by GCB's Board. Miss V is planning to have her honey moon in the Maldives in a year's time. She hopes that the stock will do very well so that she can have a great time in the Maldives. She has therefore decided to invest most of her savings of about GHS 61,320 in GCB's stock. GCB's last trading price on the Ghana Stock Exchange was GHS 5.11. Due to Miss V's enthusiasm, she has approached her investment banker to see if she can get a loan to partly finance the purchase of the stock. The investment bank charges an interest rate of 30% per annum on loans to its clients. Miss V has decided to purchase about 20,000 shares in Ghana Commercial Bank. The margin requirement has been given as 60%. A. How much can Miss V borrow from her broker? B. If Miss V has to pay commissions of GHS 2000, what will be the profit/loss and the return on the capital she invested if the stock price increases to GHS 8 in a year's time? What about if the stock falls to GHS 2.22 per share? C. Assuming Miss V decided not to take the loan but to invest only with her savings, if she pays a commission of GHS 2,000, what will be her profit/loss and return on the capital she invested if the stock price increases to GHS 8 in a year's time? What about if the stock falls to GHS 2.22 per share?
1. Miss V is bullish about the stock of Ghana Commercial Bank (GCB). She is very confident in the five-year strategic plan announced by GCB's Board. Miss V is planning to have her honey moon in the Maldives in a year's time. She hopes that the stock will do very well so that she can have a great time in the Maldives. She has therefore decided to invest most of her savings of about GHS 61,320 in GCB's stock. GCB's last trading price on the Ghana Stock Exchange was GHS 5.11. Due to Miss V's enthusiasm, she has approached her investment banker to see if she can get a loan to partly finance the purchase of the stock. The investment bank charges an interest rate of 30% per annum on loans to its clients. Miss V has decided to purchase about 20,000 shares in Ghana Commercial Bank. The margin requirement has been given as 60%. A. How much can Miss V borrow from her broker? B. If Miss V has to pay commissions of GHS 2000, what will be the profit/loss and the return on the capital she invested if the stock price increases to GHS 8 in a year's time? What about if the stock falls to GHS 2.22 per share? C. Assuming Miss V decided not to take the loan but to invest only with her savings, if she pays a commission of GHS 2,000, what will be her profit/loss and return on the capital she invested if the stock price increases to GHS 8 in a year's time? What about if the stock falls to GHS 2.22 per share?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![1. Miss V is bullish about the stock of Ghana Commercial Bank
(GCB). She is very confident in the five-year strategic plan
announced by GCB's Board. Miss V is planning to have her
honey moon in the Maldives in a year's time. She hopes that the
stock will do very well so that she can have a great time in the
Maldives. She has therefore decided to invest most of her
savings of about GHS 61,320 in GCB's stock. GCB's last trading
price on the Ghana Stock Exchange was GHS 5.11. Due to Miss
V's enthusiasm, she has approached her investment banker to
see if she can get a loan to partly finance the purchase of the
stock. The investment bank charges an interest rate of 30% per
annum on loans to its clients. Miss V has decided to purchase
about 20,000 shares in Ghana Commercial Bank. The margin
requirement has been given as 60%.
A. How much can Miss V borrow from her broker?
B. If Miss V has to pay commissions of GHS 2000, what will be
the profit/loss and the return on the capital she invested if the
stock price increases to GHS 8 in a year's time? What about if
the stock falls to GHS 2.22 per share?
C. Assuming Miss V decided not to take the loan but to invest
only with her savings, if she pays a commission of GHS 2,000,
what will be her profit/loss and return on the capital she invested
if the stock price increases to GHS 8 in a year's time? What
about if the stock falls to GHS 2.22 per share?
D. Comment on why buying on margin may either improve or
harm Miss V's chances of embarking on her dream honeymoon
[Hint: You may show this by comparing the return/value of
equity with or without buying on margin].
E. Assuming the maintenance margin is 20%, to what price
should the stock price fall to before Miss V receives a margin
call. Ignore interest and commissions.
F. Assuming the maintenance margin is 20%, to what price
should the stock price fall to before Miss V receives a margin
call. Include interest and commissions.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0dfe7469-af85-494d-9f7f-298e2c698cd4%2Fcccf8d82-f644-40c6-828b-b9b49a05bd7d%2Fjqdkxf_processed.jpeg&w=3840&q=75)
Transcribed Image Text:1. Miss V is bullish about the stock of Ghana Commercial Bank
(GCB). She is very confident in the five-year strategic plan
announced by GCB's Board. Miss V is planning to have her
honey moon in the Maldives in a year's time. She hopes that the
stock will do very well so that she can have a great time in the
Maldives. She has therefore decided to invest most of her
savings of about GHS 61,320 in GCB's stock. GCB's last trading
price on the Ghana Stock Exchange was GHS 5.11. Due to Miss
V's enthusiasm, she has approached her investment banker to
see if she can get a loan to partly finance the purchase of the
stock. The investment bank charges an interest rate of 30% per
annum on loans to its clients. Miss V has decided to purchase
about 20,000 shares in Ghana Commercial Bank. The margin
requirement has been given as 60%.
A. How much can Miss V borrow from her broker?
B. If Miss V has to pay commissions of GHS 2000, what will be
the profit/loss and the return on the capital she invested if the
stock price increases to GHS 8 in a year's time? What about if
the stock falls to GHS 2.22 per share?
C. Assuming Miss V decided not to take the loan but to invest
only with her savings, if she pays a commission of GHS 2,000,
what will be her profit/loss and return on the capital she invested
if the stock price increases to GHS 8 in a year's time? What
about if the stock falls to GHS 2.22 per share?
D. Comment on why buying on margin may either improve or
harm Miss V's chances of embarking on her dream honeymoon
[Hint: You may show this by comparing the return/value of
equity with or without buying on margin].
E. Assuming the maintenance margin is 20%, to what price
should the stock price fall to before Miss V receives a margin
call. Ignore interest and commissions.
F. Assuming the maintenance margin is 20%, to what price
should the stock price fall to before Miss V receives a margin
call. Include interest and commissions.
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