* Not long ago, Jack Edwards bought 200 shares of Almost Anything Inc. at $45.00 per share; he bought the stock on margin of 60%. The stock is now trading at $60.00 per share, and the Federal Reserve has recently lowered initial margin requirements to 50%. Jack now wants to do a little pyramiding and buy another 300 shares of the stock. What is the minimum amount of equity that he'll have to put up in this transaction? The minimum amount of equity that he'l have to put up in this transaction is $ (Round to the nearest cent.)

* Not long ago, Jack Edwards bought 200 shares of Almost Anything Inc. at $45.00 per share; he bought the stock on margin of 60%. The stock is now trading at $60.00 per share, and the Federal Reserve has recently lowered initial margin requirements to 50%. Jack now wants to do a little pyramiding and buy another 300 shares of the stock. What is the minimum amount of equity that he'll have to put up in this transaction? The minimum amount of equity that he'l have to put up in this transaction is $ (Round to the nearest cent.)

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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Similar questions

You founded your firm with a contribution of $700,000, receiving 1,000,000 shares of stock. Since then, you sold 5,000,000 stocks to Angel Investors. Now you are considering raising more capital from a Venture Capitalist. They will invest $7,000,000 and would receive 5,000,000 newly issued shares. What is the post-money valuation? Express the terms of your answer completely and in strictly numerical terms. For example: If your answer is one million dollars, write: 1000000.
You are bullish on Telecom stock. The current market price is $110 per share, and you have $22,000 of your own to invest. You borrow an additional $22,000 from your broker at an interest rate of 6.6% per year and invest $44,000 in the stock. a. What will be your rate of return if the price of Telecom stock goes up by 8% during the next year? (Ignore the expected dividend.) (Round your answer to 2 decimal places.) b. How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediate ly. (Round your answer to 2 decimal places.)
Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann (ESM) to help it go public. Zang and ESM agree that Zang's current value of equity is $55 million. Zang currently has 3 million shares outstanding and will issue 2 million new shares. ESM charges a 5% spread. How much cash will Zang raise net of the spread Write out your answer completely.
2. An analyst for Acme, R. Runner, has recommended that Peter the Anteater purchase shares in a private firm (a firm that is not traded on any exchange) called Dynamite Corp. Dynamite has 30% debt and 70% equity. R. Runner believes that Dynamite will generate a return of 10% over the next year. Since Y. Lee is new to the job, he decides to do a little research on his own. He finds a company, Explosions Unlimited, that has very similar business as Dynamite. Explosions has an equity beta of 1.05 and is composed of 40% debt and 60% equity. Should Peter the Anteater buy the stock? The expected return on the market is 12% and the expected risk-free rate is 5%.
Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann (ESM) to help it go public. Zang and ESM agree that Zang’s current value of equity is $60 million. Zang currently has 4 million shares outstanding and will issue 1 million new shares. ESM charges a 7% spread. What is the correctly valued offer price, rounded to the nearest penny? How much cash will Zang raise net of the spread (use the rounded offer price)?
What price would you be willing to pay to purchase 1 share of this stock? (Picture )
Your sister-in-law, a stockbroker at Invest Inc., is trying to sell you a stock with a current market price of $26. The stock's last dividend (Do) was $2.00, and earnings and dividends are expected to increase at a constant growth rate of 10 percent. Your required return on this stock is 20 percent. From a strict valuation standpoint, you should: a. Buy the stock; it is fairly valued. b. Buy the stock; it is undervalued by $3.00. c. Buy the stock; it is undervalued by $2.00. d. Not buy the stock; it is overvalued by $4.00. e. Not buy the stock; it is overvalued by $3.00.
Baghiben
Ray is about to go public. Its present stockholders own 530,000 shares. The new public issue will represent 1,000,000 shares. The shares will be priced at $20 to the public with a 10% spread. The out-of-pocket costs in addition to the spread will be $570,000. What are the net proceeds to Ray?
Corporations often distribute profits to their shareholders in the form of dividends, which are simply checks mailed out to shareholders. Suppose that you have the chance to buy a share in a fashion company called Rogue Designs for $35 and that the company will pay dividends of $2 per year on that share every year. What is the annual percentage rate of return? Next, suppose that you and other investors could get a 12 percent per year rate of return by owning the stocks of other very similar fashion companies. If investors care only about rates of return, what should happen to the share price of Rogue Designs? (Hint: This is an arbitrage situation.)

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