Problem 3-04You decide to sell short 300 shares of CharlotteHorse Farms when it is selling at its yearly high of$49. Your broker tells you that your marginrequirement is 65 percent and that the commissionon the purchase is $525. While you are short thestock, Charlotte pays a $2.35 per share dividend. Atthe end of one year, you buy 300 shares ofCharlotte at $34 to close out your position and arecharged a commission of $520 and 9 percentinterest on the money borrowed. What is your rateof return on the investment? Do not roundintermediate calculations. Round your answer totwo decimal places._%

The rate of return on stocks, also known as stock return, is a measure of the profitability or…

Answered: You decide to sell short 300 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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Joe wants to buy 120 shares of Company X at S50 per share using a margin account. The brokers initial margin requirement is 45%. Calculate the amount of money Joe must initially invest. (Note: Input your answer in XX format, e.g., 1000; round it to the nearest integer if an exact decimal answer is not available.)
Sooner-than-Later (STL) Inc. announces that it will pay a $75 per dividend next year, followed by a final dividend of $30 per share in the year after. Mrs. Donna Holder has 50 shares in STL Inc. She wishes to limit her income from investments limited to $35 in the first year. Demonstrate through relevant computations, how she can achieve this goal through homemade dividends if the required return on STL Inc’s shares is 9%. What will be Mrs. Holder’s earning in the second year?
Kai has $25,000 in his margin account. His broker pays 1% (continuously compounded) interest on cash balances. Kai sells 100 shares of JASA short at $175 / share. The broker charges commission of $0.01 per share, and charges 0.25% (cont. compounded) interest on the value of the stock loan. How much cash is in Kai's account immediately after the short sale? a. $25,000 b. $17,499 c. $42,500 d. $42,499 e. $17,500
Jeff Sellers bought 200 shares of ATL stock at $29.38. Eight months later, he sold the stock at $31.63. Assuming a 2% commission charge, what is the bottom line for Jeff? (Round your answer to the nearest cent.)
You short-sell 150 shares of ABC Co., now selling for $30 per share. If you wish to limit your loss to $1,300, you ishould place a stop-buy order at
XYZ purchased a call option 3 months ago for $300 ($3 per share). It gives XYZ the right to buy 100 shares in Morley Tobacco for $20 per share. The call option expires today. What is the lowest price that XYZ should exercise at and what is that lowest price at which XYZ would realize a profit?
am. 105.
Jessie B. purchases 450 shares of Smooth Sail Inc. for $50 per share at a time when the initial margin requirement is 60%. After two months, seeing that the price of Smooth Sail has fallen to $40 per share, Jessie wishes to buy an additional 200 shares. By this time, the initial margin requirement has gonedown to 50%. Will Jessie be able to do some pyramiding? What is the amount of margin he will be required to provide for his second transaction? Answer the question showing calculations.
On January 1, year 1, Tyra started working for Hatch Corporation. New employees must choose immediately between receiving 7 NQOs (each NQO provides the right to purchase for $5 per share 10 shares of Hatch stock) or 50 restricted shares. Hatch's stock price is $5 on Tyra's start date. Either form of equity-based compensation will vest in two years. Tyra believes that the stock will be worth $15 per share in two years and $25 in four years when she will sell the stock. Tyra's marginal tax rate is 32 percent and her long-term capital gains rate is 15 percent. Assuming that Tyra's price predictions are correct, answer the following questions (ignore present value, and use nominal dollars): (List cash outflows as negative amounts. Leave no answers blank. Enter zero if applicable.) Problem 12-37 Part c (Static) c. What are the cash-flow effects to Tyra in the year she receives the restricted stock, in the year the stock vests, and in the year she sells the stock if she makes an 83(b)…
Jackie has posted $45,000 in her margin account. If intial margin requirements are 50%, and Turtle Industries is currently selling at $25 per share: How many shares of Turtle can Jackie purchase? What is Jackie’s profit if Turtle’s price rises to $40?
1. You decide to short sell 100 shares of ABC Corporation when it is selling at its yearly high of P42.25. Your broker tells you that your margin requirement is 60% and that the commission on the sale is P20. While you are short, ABC Corporation pays a P.85 per share dividend. At the end of one year you buy your ABC Corporation shares (cover your short sale) at P44 and are charged a commission of P20 and a 5% interest rate. a. What is your peso return on the investment? (Show the solution and computation). a. P384.50 b. P432.88 c. -P432.88 d. -P384.50 b. What is your rate of return on the investment? a. 10.48% b. 12.87% c. -15.05% d. -13.98%
Azaria own 1,000 shares of Levilla's Inc. Levilla follows a constant dividend policy, implying that it will pay the same dividend per share each year indefinitely. The dividend per share is $2.30 per year. You intend to invest in Levilla’s stock and hold it for 2 years. At the same time, you would like to receive at least $17 per share as dividend in the second year. You wish to achieve your goal by following the homemade dividends strategy in a world without taxes. Will you be able to do so? Substantiate your answer through relevant computations. Investors require a return of 15% on Levilla’s stock.

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