Given the following information for a stock, forward contract and interest rates:• Current bid price per share of the stock: $120• Current ask price per share of the stock: $121• Annual continuously compounded dividend rate for the stock: 3%• Annual continuously compounded interest rate for borrowing: 2%• Annual continuously compounded interest rate for lending: 1.5%• Fee for each stock transaction: $1.5• Fee for each forward contract transaction: $1.5Calculate the lower bound for 2-year forward price per share of the stock, below which a profitablearbitrage can be obtained (keep 2 decimal places in your answer).

The lower bound for the 2-year forward price per share of the stock is the price below which a…

Answered: Given the following information for a…

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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An investor sells a stock short for $97 a share. The company pays a $4.70 annual cash dividend. After a year has passed, the seller covers the short position at $85. If the margin requirement is 57 percent, what is the percentage return earned on the investment?Redo the calculations, assuming the price of the stock is $103 when the investor closes the position.Based on your calculations to both scenarios, what generalization can be inferred?
Use the commission schedule from Company A shown in the table to find the annual rate of interest earned on the investment. (Note: commissions are rounded to the nearest cent.) An investor purchases 250 shares at $11.21 a share, holds the stock for 37 weeks, and then sells the stock for $13.65 a share. The annual rate is %. (Round to five decimal places.) Principal (Value of Stock) Under $3,000 $3,000 to $10,000 Over $10,000 Commission $25+1.8% of principal $37+1.4% of principal $107+0.7% of principal
XYZ's stock price and dividend history are as follows: Year Beginning-of-Year Price Dividend Paid at Year-End 2019 $ 155 2020 185 2021 145 2022 155 Arithmetic average rate of return Geometric average rate of return An investor buys three shares of XYZ at the beginning of 2019, buys another two shares at the beginning of 2020, sells one share at the beginning of 2021, and sells all four remaining shares at the beginning of 2022. $ 3 3 3 Required: a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Round your year-by-year rates of return and final answers to 2 decimal places. Do not round other calculations.) % % Dollar-weighted rate of return wwww 3 % b. What is the dollar-weighted rat of return? (Hint. Carefully prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2019, to January 1, 2022. If your calculator cannot calculate IRR, you will have to use trial and error or a spreadsheet…
XYZ's stock price and dividend history are as follows: Year Beginning-of-Year Price 2019 2020 2021 2022 $88 108 78 88 Dividend Paid at Year-End $4 An investor buys three shares of XYZ at the beginning of 2019, buys another two shares at the beginning of 2020, sells one share at the beginning of 2021, and sells all four remaining shares at the beginning of 2022 Arithmetic average rate of return Geometric average rate of return Required: a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Round your year-by-year rates of return and final answers to 2 decimal places. Do not round other calculations.) Dollar-weighted rate of return 4 4 4 % % b. What is the dollar-weighted rate of return? (Hint Carefully prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2019, to January 1, 2022. If your calculator cannot calculate IRR, you will have to use trial and error or a spreadsheet program.) (Round your…
XYZ stock price and dividend history are as follows: Beginning-of-Year Dividend Paid at Year 2018 2019 Price $ 140 159 132 137 2020 2021 Year-End $ 4 4 4 4 An investor buys five shares of XYZ at the beginning of 2018, buys another three shares at the beginning of 2019, sells one share at the beginning of 2020, and sells all seven remaining shares at the beginning of 2021. Required: a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Arithmetic time-weighted average returns Geometric time-weighted average returns % % b-1. Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2018, to January 1, 2021. (Negative amounts should be indicated by a minus sign.) Date Cash Flow 01/01/2018 01/01/2019 01/01/2020 01/01/2021
You own a perpetual preferred stock issued by Mass General Insurance Company. If the Mass General preferred pays a dividend of $1.02/year, and today’s market rate for this preferred is 4.1%/year, what is its estimated current market price?
Given the following price and dividend information, calculate the $1 invested equivalent. (Round to 4 decimals) Stock: MSFT Year Price Dividend 2017 $ 64.65 2018 $ 95.01 $ 1.72 2019 $ 104.43 $ 1.89 2020 $107.23 $ 2.09 2021 $231.96 $ 2.30 2022 $310.98 $ 2.54 2023 $ 247.81 $ 3.00
Find the cost, at the day's closing price, for the stock purchase below. Include typical discount broker commissions as described in the table, using Broker B. Stock Symbol: ZCO Number of Shares: 50 Transaction Type: Broker-Assisted The cost for the stock purchase is S (Simplify your answer.)
Find the cost, at the day's closing price, for the stock purchase below. Include typical discount broker commissions as described in the table, using Broker B. Stock Symbol: SND Number of Shares: 90 Transaction Type: Broker-Assisted The cost for the stock purchase is $
O Below is the stock price and dividend history for No-Cameras-Allowed Inc. (NCA), a company organizing Las Vegas retreats for investment banks. Stock Price (end-of-year) Dividend (paid during the year) Year 2019 90 180 18 2020 2021 120 6. a. Compute the annual return in 2020 and 2021. b. Compute the arithmetic average return over the 2019–2021 period. c. Compute the geometric average return over the 2019–2021 period. d. You buy 2,000 shares of NCA at the end of 2019 and hold them through the end of 2021. You reinvest any dividends received (i.e., you use the dividend proceeds to buy more shares of NCA). Except for reinvestment of dividends, you neither buy nor sell any shares before the end of 2021. Which average, arithmetic or geometric, better captures your investment performance over the 2019–2021 period? Please provide a brief explanation for your answer. B Focus MacBook Pro
A preferred stock from Duquesne Light Company (DQUPRA) pays $3.55 in annual dividends.If the required return on the preferred stock is 6.7 percent, what’s the value of the stock? (Round your answer to 2 decimal places.)
Suppose that Xtel currently is selling at $46 per share. You buy 250 shares using $8,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 6%. Required: a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i) $48.76; (ii) $46; (iii) $43.24? What is the relationship between your percentage return and the percentage change in the price of Xtel? b. If the maintenance margin is 25%, how low can Xtel's price fall before you get a margin call? c. How would your answer to (b) change if you had financed the initial purchase with only $5,750 of your own money? d. What is the rate of return on your margined position (assuming again that you invest $8,000 of your own money) if Xtel is selling after 1 year at: (i) $48.76; (ii) $46; (iii) $43.24? What is the relationship between your percentage return and the percentage change in the price of Xtel? Assume that Xtel…

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