g. BABA is a volatile stock and its stock price is expected to fluctuate within ±+50% from itscurrent price level ($20). To avoid getting a marginal call, Jeremy can put more cash into hisbrokerage account when he first establishes the long position, i.e., his initial margin is largerthan the IMR which is at 50%. What is the initial margin such that he will never get a margincall? Assume the price drop happens immediately after he purchases the stock.

Given that BABA's stock price can fluctuate within ±50% from its current price level of $20, the…

Answered: g. BABA is a volatile stock and its…

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

See similar textbooks

Similar questions

Consider the following multifactor (APT) model of security returns for a particular stock. Factor Inflation Industrial production Oil prices Expected rate of return Factor Beta 1.8 1.3 0.9 a. If T-bills currently offer a 9% yield, find the expected rate of return on this stock if the market views the stock as fairly priced. (Do not round intermediate calculations. Round your answer to 1 decimal place.) Factor Inflation Industrial production Oil prices Expected rate of return % b. Suppose that the market expects the values for the three macro factors given in column 1 below, but that the actual values turn out as given in column 2. Calculate the revised expectations for the rate of return on the stock once the "surprises" become known. (Do not round intermediate calculations. Round your answer to 1 decimal place.) Expected Value 5% Factor Risk Premium 7% 4 2 10 6 % Actual Value 3% 6 0
You are concerned about the market volatility but have found stocks that are attractively priced. In additionto cash, your portfolio will have securities both on the LONG and SHORT sides. You want to set up your LONG/SHORT portfolio with some constraints. You will set aside 12.27% of the equity as a cash reserve to cushion any adverse margin changes and to pay any associated fees. You will maximize your buying and selling power (i.e. what you can purchase and sell on margin) using the remaining equity and loans from the broker. Your account's beginning equity is $201,290 all in cash before you start trading. You will set up your 100% beta-neutral trade on full margin, and the margin requirements are 50% on both sides. Assume that the LONG side has a weighted average beta of 1.35, while the SHORT side has a weighted average beta of 1.00. What is the value of your account's total liabilities immediately after you set up the portfolio? O $250,234 $257,185 $264,136 $271,087 $278,038
Consider the following multifactor (APT) model of security returns for a particular stock. Factor Risk Premium 8% 9 7 Factor Inflation Industrial production Oil prices Factor Beta 1.1 0.6 0.3 a. If T-bills currently offer a 7% yield, find the expected rate of return on this stock if the market views the stock as fairly priced. (Do not round intermediate calculations. Round your answer to 1 decimal place.) X Answer is complete but not entirely correct. Expected rate of return 19.0 X %
Investors expect short-term rates to decrease in the near future. However, they demand positive liquidity premium. Is the resulting yield curve going to be upward or downward slopping? Explain why
An investor is considering purchasing a share of stock. Earnings are expected to be $6 per share and the price next year is expected to be $100. Suppose risk-free interest rates fall and the required rate of return decreases from 7% to 6%. Nothing else changes. What is new price the investor is wiling to pay for the stock? Answer in dollars and do not enter a $ sign. Round to two decimal places. please explain step by step
A stock has not been fluctuating much in price. Its average price is $20/share. You expect that the stock price behaves the same way in the next year. A one-year put option is selling for $5, which has an exercise price of $20. Suppose the risk-free rate is 0.05. To make use of your expectation in the future price movement, you establish a straddle strategy to maximize your profits. If the stock price actually ends up at $20 in a year, your profit is $ . Give your answer to 2 decimal places.
How did Enrons Management profited from the Fraud over the years and in the end
Short straddle is an option strategy that involves simultaneously selling a put and a call on the same stock with the same strike price, which is equal to the current stock price. Profit or Loss What is the purpose of this strategy? $400 SO 30 To profit from a large price increase SHORT STRADDLE A To profit from large price deviations from the current price D) To profit from a large price decrease 40 B To profit from the lack of price deviations from the current price 50 Stock Price at Expiration :
Although investing all at once works best when stock prices are rising, dollar-cost averaging can be a good way to take advantage of a fluctuating market. Dollar-cost averaging is an investment strategy designed to reduce volatility in which securities are purchased in fixed dollar amounts at regular intervals regardless of what direction the market is moving. This strategy is also called the constant dollar plan. You are considering a hypothetical $1,200 investment in a media company's stock. Your choice is to invest the money all at once or dollar-cost average at the rate of $100 per month for one year. Assume that the company allows you to purchase "fractional" shares of its stock. (a) If you invested all of the money in January and bought the shares for $12 each, how many shares could you buy? shares (b) From the following chart of share prices, calculate the number of shares that would be purchased each month using dollar-cost averaging and the total shares for the year. Round to…
(i) Stock XYZ, which traded for several months at a price of K72, and then declines to K65. if the stock eventually begins to increase in price, K72 is considered a resistance level because investors who bought originally at K72 will be eager to sell their shares as soon as they can break even on their investment. If everyone in the market believes in resistance levels, why do these beliefs not become self-fulfilling prophecies? (ii) What would happen to market efficiency if all investors attempted to follow a passive strategy?
Consider a market where there are N rational traders. All of these traders have CARA preferences with risk aversion parameter γ = .5. They are considering a stock that will pay a terminal dividend in the next period. The expected payoff of the dividend is $100 per share with a standard deviation of $10. Assume that the discount rate is zero. That is, don’t worry about discounting future payoffs. a) If there are 10 shares of the stock available, what is the price of the stock as a function of N? b) Does the price increase or decrease as N increases? Explain the intuition of this result. c) If N = 10, what is the price of the stock? How does the price change if γ increases to .6? Explain the intuition for why the price moves this direction when γ increases.
Dollar-cost averaging means that you buy equal dollar amounts of a stock every period, for example, $500 per month. The strategy is based on the idea that when the stock price is low, your fixed monthly purchase will buy more shares, and when the price is high, fewer shares. Averaging over time, you will end up buying more shares when the stock is cheaper and fewer when it is relatively expensive. Therefore, by design, you will exhibit good market timing. Evaluate this strategy.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS