26. An investor puts up $5,000 but borrows an equal amount of money from their broker to double the amount invested in ABC stock. The broker charges 7% on the loan. The stock was originally purchased at $25 per share and in one year the investor sells the stock for $28. The trading cost is $0.2 per share. ABC stock pays dividends of $0.4 per share. The investor's rate of return was 16.8% 17% 18.6% 16%

26. An investor puts up $5,000 but borrows an equal amount of money from their broker to double the amount invested in ABC stock. The broker charges 7% on the loan. The stock was originally purchased at $25 per share and in one year the investor sells the stock for $28. The trading cost is $0.2 per share. ABC stock pays dividends of $0.4 per share. The investor's rate of return was 16.8% 17% 18.6% 16%

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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am. 105.
Y6 Consider a stock priced at $40 that pays an annual dividend of $ 1 per share. An investor purchases the stock on margin, paying $20 per share and borrowing the remainder from the brokerage firm at 10 percent annual interest. a. If, after one year, the stock is sold at a price of $60 per share, what is the return on the stock? b. If investors had used only personal funds rather than borrowing funds, what would have been the stock return?
You purchase 2,000 shares of Nice Kick Group (NKG) at $45 per share by giving your broker $60,000 to establish your margin account and borrowing the rest from your broker. A year has passed (t=1), and NKG paid out a dividend of $2 per share. The maintenance margin is 25%. If you paid an interest at a rate of 8% on the funds you borrowed from your broker, what is the NKG price at which would trigger a margin call? A. $60.94 B. $36.25 C. $71.07 D. $18.93
National Grid PLC. (ticker: NGG) is currently trading at $59.11 per share. But youare bearish on the stock and believe that the price will fall to $56.32 in two weeks. Youdecide to short sell 100 shares. Your broker will charge 1.7% interest for lending shares toyou, independent of the length of the loan. You are required to pay the interest when youclose your short sale position. What is your expected investment outcome? A. $132.00 profitB. $178.51 profitC. $196.25 profitD. $210.00 profitE. $379.49 profit
d. Patah Hati Berhad's common stock is selling for RM22.00 per share. The last dividend was RM1.20, and dividends are expected to grow at a 6% annual rate. Flotation costs on new stock sales are 5% of the selling price. Compute the cost of Patah Hati Berhad's new common stock.
The closing price of shares of ABB Ltd On December 31, previous year was RS. 25. It paid a year end dividend as detailed below: Year1 Year2 Year3 Year4 Year5 Rs. 2.00 Rs. 2.00 Rs. 2.20 Rs. 2.50 Rs. 2.50 At what price should an investor sell his shares at the end of year 5 to earn a compound rate of return of 15% on the initial investment of Rs. 25. Ignore commissions and taxes.
Company A’s stock price is $50 today. It pays dividend of $1 after two months and $1.05after five months. The continuous compounded interest rate is 4%. Transaction costs are$0.20 per stock traded, and a $0.30 one-time fee for trading forward contracts, and no costfor borrowing or saving. If the six-month forward price is $52, demonstrate how to makearbitrage profits or explain why you can not.
You have a margin account and deposit Rs.90,000. Assuming the prevailing marginrequirement is 20%, commissions are ignored and D.G.K Cement stock is selling atRs.55 per share while Askari Cement stock is selling at Rs. 85 per share. You invest 40%of your investment in D.G.K cement while remaining is deposited in Askari cement.a. How many shares of each stock can you purchase using the maximum allowablemargin if you invest in both?b. What is your total and percentage profit (loss) if:1. the price of D.G.K Cement Rises to Rs.65 per share while Askari Cement stockrises to Rs. 97 per share?2. the price of D.G.K Cement reduces to Rs.42 per share while Askari Cementstock reduces to Rs. 76 per share?c. If you invest all money in D.G.K cement ONLY and the maintenance margin is 25%,to what price can D.G.K Cement stock fall before you will receive a margin call?d. If you invest all money in Askari cement ONLY and the maintenance margin is 25%,to what price can Askari cement stock fall before you…
7. Doctors' Inc. just paid an annual dividend of $2.00 last week and is currently selling for $25 per share (not necessarily the value). Its dividends are expected to increase by 5% annually. Based on the riskiness of Doctors' Inc's stock, your required rate of return is 15%. What should be your trading strategy on this stock? a. b. C. d. e. Buy the stock at $25.00 if you don't own it as it is worth $21.00 per share. Sell the stock if you own it at $25.00 as it is worth $21.00 per share. Buy the stock at $25.00 if you don't own it as it is worth $28.00 per share. Sell the stock if you own it at $25.00 as it is worth $13.50 per share. Nothing, the stock is fairly priced at $25.00 per share.
- Assume that six months ago you bought 2,500 shares of a stock at $70 per share using a margin. The margin rate was 40% and the interest rate on the margin loan was 8%. Assume no commissions. What is your gain or loss if the current stock price is $71 per share? A. -$1,700 B. $2,500 C. $6,700
Jedson Pinto is a trader for Articuno Capital. He decided to buy 100 shares of Tesla at $ 150 per share. Two-thirds of the purchase was paid with cash, with the remainder using borrowed money. One month later, the stock price increased to $165 per share. The annual interest rate is 2%. What is Pinto's levered return? Group of answer choices 19.67% 14.83% 10.00% 29.63%
You sold short 200 shares of common stock at $60 per share. The initial margin is 65%. What would your rate of return be if you repurchase the stock at $80 per share. Ignore interest on the margin.

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