Question

QUESTION 5 An investor buys $19 thousand dollars of ABT stock at $20 per share, using 52% initial margin. The broker charges 7% APR compounded daily on the loan, and requires a 35% maintenance margin. The stock pays $0.5 per share dividend each year. If the stock is sold at the end of the year at $22 per share, what is the investor's rate of return? Enter answer in percents, accurate to 2 decimal places. QUESTION 6 You sell short 200 shares of BSX at $50 per share. You post the 50% margin required for the short sale. Assume you pay 5% interest on the initial value of the loan of shares. The company stock pays dividends of $0.34 per share every quarter. What is your rate of return on this position, if you close it out at $35 per share after one year? Enter answer in percents, accurate to 2 decimal places. QUESTION 7 You purchased 200 shares of CNX common stock on margin at $52 per share. Assume the initial margin is 50% and the maintenance margin is 35%. You will get a margin call if the stock drops below Assume the stock pays no dividends, and you pay no interest on the margin loan. QUESTION 8 You buy 237 shares of JPM, at $113 per share. If you wish to limit your maximum loss to $10,000, you should place a stop-sell order at Ignore possible dividends and trading costs.

Answer 1

Solution :-

No of shares bought = 19000 / 20 = 950 shares

Margin money paid = 19000 x 51% = 9690

Broker funding = 19000-9690 = 9310

interest to be paid on broker funding = 9310 x {(1+i/365)³⁶⁵ - 1} = 9310 x {(1+0.07/365)³⁶⁵ - 1}

= 9310 x 7.2501% = $674.98

Gain per share = dividend + capital gains

= 0.50 + (22-20) = 2.50

Total gains from investing = 2.50 x 950 shares = 2375

Net gains after paying broker interest = 2375 - 674.98 = 1700.02

Amount invested = 9690

therefore investor's rate of return = 1700.02 / 9690 = 17.54%

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