Her attention is on the stock market and there is a share, Bolton Machinery, that looks promising and is behaving as a normal asset on the market. The price is currently set at £150 and there are three scenarios; Good and then the sale of the share will be at £180 and dividend at £10 Normal with a sales price of £165 and a dividend at £5 followed by Bad when the share will be sold at a loss of £30 and no dividend will be received. The probability for good is 25% and normal 40%. Make an evaluation of this

A strategy for making decisions is called expected monetary value (EMV) contribution, and it is used…

Answered: Make an evaluation of this

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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2. Suppose you buy shares of a stock worth OMR20000 and the initial margin is 50% and the maintenance margin is 30%. A. How much money must you pay the broker for the shares? How much have you borrowed from the broker? B. Suppose the price of the stock falls so that the shares are only worth OMR10000. What would be your nev account equity? C. How much money you need to give the broker to meet the maintenance margin?

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	If then Bolton Machinery is behaving like a normal asset Durability Plc is the opposite.
	The price for the share is currently at £250 and the probabilities for the three market
	conditions are the same as for Bolton Machinery. However if conditions are good
	the sale price will be at £140 and a dividend at £3, bad will give a sale price of £320
	and a dividend of 14. For normal the gain will be £10 when sold and deliver a dividend
	of 7.
	Make an evaluation of this.


Her attention is on the stock market and
there is a share, Bolton Machinery, that looks promising and is behaving as a normal
asset on the market. The price is currently set at £150 and there are three scenarios;
Good and then the sale of the share will be at £180 and dividend at £10
Normal with a sales price of £165 and a dividend at £5 followed by Bad when the share
will be sold at a loss of £30 and no dividend will be received.
The probability for good is 25% and normal 40%.
Make an evaluation of this