You decide to sell short 100 shares of Charlotte Horse Farms when it is selling at its yearly high of $51. Your broker tells you that your margin requirement is 50 percent and that the commission on the purchase is $170. While you are short the stock, Charlotte pays a $2.35 per sharedividend. At the end of one year, you buy 100 shares of Charlotte at $37 to close out your position and are charged a commission of $160 and 7 percent interest on the money borrowed. What is your rate of return on the investment? Do not round intermediate calculations. Round youranswer to two decimal places.

Rate of Return: It represents a measure of gain or loss made by an investment over the period. The…

Answered: You decide to sell short 100 shares of…

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?
Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at $58 per share. She borrows $2,200 from her broker to help pay for the purchase. The interest rate on the loan is 12%. Required:a. What is the margin in Dée’s account when she first purchases the stock? b. If the share price falls to $48 per share by the end of the year, what is the remaining margin in her account? c. If the maintenance margin requirement is 30%, will she receive a margin call?multiple choice Yes No Correct d. What is the rate of return on her investment? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at $58 per share. She borrows $2,200 from her broker to help pay for the purchase. The interest rate on the loan is 12%. Required:a. What is the margin in Dée’s account when she first purchases the stock? b. If the share price falls to…
Two years ago, you purchased 100 shares of General Mills Corporation. Your purchase price was $61 a share, plus a total commission of $38 to purchase the stock. During the last two years, you have received total dividends of $2.48 per share. Also, assume that at the end of two years, you sold your General Mills stock for $66 a share minus a total commission of $36 to sell the stock. Calculate the total return for your investment and the annualized holding period yield. O Total return on the investment: $574. Annualized holding period yield: 4.70%. O Total return on the investment: $674. Annualized holding period yield: 5.52%. O Total return on the investment: $774. Annualized holding period yield: 6.34%. O Total return on the investment: $874. Annualized holding period yield: 7.16%.
Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to determine the rate of return that she is earning. For example, three years ago she paid $23,000 for 500 shares of Malti Company's common stock. She received a $460 cash dividend on the stock at the end of each year for three years. At the end of three years, she sold the stock for $30,000. Kathy would like to earn a return of at least 13% on all of her investments. She is not sure whether the Malti Company stock provide a 13% return and would like some help with the necessary computations. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the net present value that Kathy earned on her investment in Malti Company stock. 2. Did the Malti Company stock provide a 13% return? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the net present value that Kathy earned on her investment…
Ryan Neal bought 1,400 shares of Ford at $15.82 per share. Assume a commission of 3% of the purchase price. Ryan sells the stock for $20.13 with the same 3% commission rate. What is the gain or loss for Ryan? (Input the amount as a positive value. Round your answer to the nearest cent.)
You own 1,000 shares of stock in Avondale Corp. You will receive a $.80 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $45 per share. The required return on Avondale stock is 10 percent. a. What is the current share price of your stock (ignoring taxes)? b. If you would rather have equal dividends in each of the next two years by creating homemade dividends, what would be the cash flow for Year 1 and Year 2?
In you cash account, you buy 100 shares of XYZ Corporation at a price of $10 per share. Two months later, XYZ pays a dividend $0.21 per share. You sell all 100 shares of XYZ three months later at a price of $12 per share. What is your capital gain on this trade?
Dee Trader opens a brokerage account and purchases 200 shares of Internet Dreams at $50 per share. She borrows $3,300 from her broker to help pay for the purchase. The interest rate on the loan is 6%. Required: a What is the margin in Dee's account when she first purchases the stock? b. If the share price falls to $40 per share by the end of the year, what is the remaining margin in her account?
You've just opened a margin account with $33,880 at your local brokerage firm. You instruct your broker to purchase 800 shares of Landon Golf stock, which currently sells for $77 per share. Suppose the call money rate is 6.5 percent and your broker charges you a spread of 1.25 percent over this rate. You hold the stock for four months and sell at a price of $84 per share. The company paid a dividend of $.32 per share the day before you sold your stock. a. What is your total dollar return from this investment? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Dollar return b. What is your effective annual rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Effective annual return %

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