BUSI 420 Homework 1 Investing Overview Assignment solutions complete answers

BUSI 420 Homework 1 Investing Overview Assignment solutions complete answers

 

Question 1

 

Suppose you bought 750 shares of stock at an initial price of $49 per share. The stock paid a dividend of $0.52 per share during the following year, and the share price at the end of the year was $44.

 

a. Compute your total dollar return on this investment. (A negative value should be indicated by a minus sign.)

 

b. What is the capital gains yield? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

c. What is the dividend yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

d. What is the total rate of return on the investment? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question 2

 

The rates of return on Cherry Jalopies, Inc., stock over the last five years were 16 percent, 11 percent, −1 percent, 6 percent, and 11 percent. Over the same period, the returns on Straw Construction Company’s stock were 16 percent, 23 percent, −6 percent, 6 percent, and 11 percent.

 

Calculate the variances and the standard deviations for Cherry and Straw. (Do not round intermediate calculations. Enter your variance as a decimal rounded to 5 decimal places. Enter your standard deviation as a percent rounded to 2 decimal places.)

 

Question 3

 

A particular stock has a dividend yield of 1.6 percent. Last year, the stock price fell from $83 to $69. What was the return for the year? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question 4

 

Carson Corporation stock sells for $44 per share, and you’ve decided to purchase as many shares as you possibly can. You have $52,000 available to invest. What is the maximum number of shares you can buy if the initial margin is 70 percent? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

 

Question 5

 

You purchase 800 shares of 2nd Chance Co. stock on margin at a price of $42. Your broker requires you to deposit $17,000.

 

a. What is your margin loan amount? (Do not round intermediate calculations.)

 

b. What is the initial margin requirement? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question 6

 

You purchase 450 shares of 2nd Chance Co. stock on margin at a price of $60. Your broker requires you to deposit $17,000.

 

a. Suppose you sell the stock at a price of $68. What is your return? What would your return have been had you purchased the stock without margin? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

b. What is your return if the stock price is $59 when you sell the stock? What would your return have been had you purchased the stock without margin? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) 

 

Question 7

 

You have $30,000 and decide to invest on margin. If the initial margin requirement is 60 percent, what is the maximum dollar purchase you can make? (Round your answer to the nearest whole number.)

 

Question 8

 

You buy 600 shares of stock at a price of $86 and an initial margin of 75 percent. If the maintenance margin is 40 percent, at what price will you receive a margin call? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question 9

 

The stock of Flop Industries is trading at $41. You feel the stock price will decline, so you short 600 shares at an initial margin of 65 percent. If the maintenance margin is 30 percent, at what share price will you receive a margin call? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question 10

 

You short sold 550 shares of stock at a price of $34 and an initial margin of 65 percent. If the maintenance margin is 35 percent, at what share price will you receive a margin call? What is your account equity at this stock price? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

Question 11

 

You purchased a stock at the end of the prior year at a price of $99. At the end of this year, the stock pays a dividend of $2.00 and you sell the stock for $100. What is your return for the year? Now suppose that dividends are taxed at 15 percent and long-term capital gains (over 11 months) are taxed at 30 percent. What is your after-tax return for the year? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

Question 12

 

You’ve just opened a margin account with $15,000 at your local brokerage firm. You instruct your broker to purchase 700 shares of Landon Golf stock, which currently sells for $32 per share.

 

a. What is your initial margin? (Enter your answer as a percent rounded to 2 decimal places.)

 

b. Construct the equity account balance sheet for this position.

 

Question 13

 

Suppose you purchase 1,000 shares of stock at $80 per share with an initial cash investment of $41,000. If your broker requires a maintenance margin of 25 percent, at what share price will you be subject to a margin call? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question 14

 

Suppose you purchase 900 shares of stock at $74 per share with an initial cash investment of $33,300. The call money rate is 5 percent and you are charged a 1.5 percent premium over this rate. Ignore dividends.

 

a. Calculate your return on investment one year later if the share price is $82. Suppose instead you had simply purchased $33,300 of stock with no margin. What would your rate of return have been now? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

b. Calculate your return on investment one year later if the share price is $74. Suppose instead you had simply purchased $33,300 of stock with no margin. What would your rate of return have been now? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

c. Calculate your return on investment one year later if the share price is $58. Suppose instead you had simply purchased $33,300 of stock with no margin. What would your rate of return have been now? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

Question 15

 

Suppose the call money rate is 6.8 percent, and you pay a spread of 1.9 percent over that. You buy 600 shares at $44 per share with an initial margin of 55 percent. One year later, the stock is selling for $52 per share and you close out your position. What is your return assuming no dividends are paid? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question 16

 

Suppose you take out a margin loan for $44,000. The rate you pay is an effective rate of 9.2 percent. If you repay the loan in six months, how much interest will you pay? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question 17

 

Suppose you hold a particular investment for 6 months. You calculate that your holding period return is 5 percent. What is your annualized return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question 18

 

Suppose you buy stock at a price of $77 per share. Four months later, you sell it for $82. You also received a dividend of $0.76 per share. What is your annualized return on this investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question 19

 

You’ve just opened a margin account with $29,520 at your local brokerage firm. You instruct your broker to purchase 600 shares of Landon Golf stock, which currently sells for $82 per share. Suppose the call money rate is 7 percent and your broker charges you a spread of 1 percent over this rate. You hold the stock for four months and sell at a price of $90 per share. The company paid a dividend of $0.44 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.)

 

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.)

 

Question 20

 

You believe the price of Rose, Inc., stock is going to fall and you’ve decided to sell 300 shares short. If the current share price is $89, construct the equity account balance sheet for this trade. Assume the initial margin is 100 percent. (Input all amounts as positive values.)

 

Question 21

 

You just sold short 500 shares of Wetscope, Inc., a fledgling software firm, at $66 per share. You cover your short when the price hits $56.50 per share one year later. If the company paid $0.85 per share in dividends over this period, what is your rate of return on the investment? Assume an initial margin of 70 percent. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

 

 

Problem 2-25 Calculating Short Sale Returns (LO4, CFA3)
You just sold short 700 shares of Wetscope, Incorporated, a fledgling software firm, at $81 per share. You cover your short when the price hits $71.50 per share one year later. If the company paid $0.35 per share in dividends over this period, what is your rate of return on the investment? Assume an initial margin of 50 percent.

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

 

Problem 2-23 Short Sales (LO4, CFA3)
You believe that Rose, Incorporated, stock is going to fall and you’ve decided to sell 700 shares short. If the current share price is $48, construct the equity account balance sheet for this trade. Assume the initial margin is 100 percent.

Note: Input all amounts as positive values.

 

Problem 2-22 Calculating Returns (CFA1)
You’ve just opened a margin account with $27,755 at your local brokerage firm. You instruct your broker to purchase 700 shares of Landon Golf stock, which currently sells for $61 per share. Suppose the call money rate is 5.5 percent and your broker charges you a spread of 1.25 percent over this rate. You hold the stock for three months (or 90 days) and sell at a price of $67 per share. The company paid a dividend of $0.52 per share the day before you sold your stock.

a.   What is your total dollar return from this investment?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

b.      What is your effective annual rate of return?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

 

Problem 2-21 Annualized Returns (CFA1)
Suppose you buy stock at a price of $66 per share. Five months later, you sell it for $70. You also received a dividend of $0.54 per share. What is your annualized return on this investment?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

 

Problem 2-19 Annualized Returns (CFA1)
Suppose you hold a particular investment for 7 months. You calculate that your holding period return is 6.4 percent. What is your annualized return?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.





Problem 2-17 Margin Interest (LO3, CFA2)
Suppose you take out a margin loan for $56,000. The rate you pay is an effective rate of 7.4 percent. If you repay the loan in six months, or 180 days, how much interest will you pay?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

 

Problem 2-15 Margin and Leverage (LO3, CFA2)
Suppose the call money rate is 6.8 percent, and you pay a spread of 1.9 percent over that. You buy 600 shares at $44 per share with an initial margin of 55 percent. One year later, the stock is selling for $52 per share and you close out your position. What is your return assuming no dividends are paid?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

 

Problem 2-14 Margin and Leverage (LO3, CFA2)
Suppose you purchase 1,500 shares of stock at $75 per share with an initial cash investment of $56,250. The call money rate is 5 percent and you are charged a 1.5 percent premium over this rate. Ignore dividends.

a.   Calculate your return on investment one year later if the share price is $83. Suppose instead you had purchased $56,250 of stock with no margin. What would your rate of return have been now?

Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.

b.      Calculate your return on investment one year later if the share price is $75. Suppose instead you had purchased $56,250 of stock with no margin. What would your rate of return have been now?

Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.

c.      Calculate your return on investment one year later if the share price is $59. Suppose instead you had purchased $56,250 of stock with no margin. What would your rate of return have been now?

Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.

 

Problem 2-13 Margin Call (LO3, CFA2)
Suppose you purchase 550 shares of stock at $81 per share with an initial cash investment of $29,000. If your broker requires a maintenance margin of 35 percent, at what share price will you be subject to a margin call?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

 

Problem 2-12 Calculating Margin (LO3, CFA2)
You’ve just opened a margin account with $15,000 at your local brokerage firm. You instruct your broker to purchase 1,000 shares of Landon Golf stock, which currently sells for $32 per share.

a.   What is your initial margin?

Note: Enter your answer as a percent rounded to 2 decimal places.

b.      Construct the equity account balance sheet for this position.

 

Problem 2-10 Taxes and Returns (LO1, CFA8)
You purchased a stock at the end of last year at a price of $86. At the end of this year, the stock pays a dividend of $2.30 and you sell the stock for $90. What is your return for the year? Now suppose that dividends are taxed at 15 percent and long-term capital gains (over 11 months) are taxed at 30 percent. What is your aftertax return for the year?

Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.

 

Problem 2-9 Margin Calls on Short Sales (LO4, CFA3)
You sold short 500 shares of stock at a price of $42 and an initial margin of 65 percent. If the maintenance margin is 40 percent, at what share price will you receive a margin call? What is your account equity at this stock price?

Note: Do not round intermediate calculations. Round your answers to 2 decimal places.

 

Problem 2-8 Margin Calls on Short Sales (LO4, CFA3)
The stock of Flop Industries is trading at $37. You feel the stock price will decline, so you short 400 shares at an initial margin of 60 percent. If the maintenance margin is 30 percent, at what share price will you receive a margin call?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

 

Problem 2-6 Margin Calls (LO3, CFA2)
You buy 400 shares of stock at a price of $64 and an initial margin of 50 percent. If the maintenance margin is 30 percent, at what price will you receive a margin call?

Note: Do not round intermediate calculations. Round your answer to 2 decimal places.

 

Problem 2-5 Margin Purchases (LO3, CFA2)
You have $49,000 and decide to invest on margin. If the initial margin requirement is 70 percent, what is the maximum dollar purchase you can make?

Note: Round your answer to the nearest whole number.

 

Problem 2-3 Margin Return (LO3, CFA2)
You purchase 650 shares of 2nd Chance Company stock on margin at a price of $48. Your broker requires you to deposit $16,000.

a.   Suppose you sell the stock at a price of $55. What is your return? What would your return have been had you purchased the stock without margin?

Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.

b.        What is your return if the stock price is $47 when you sell the stock? What would your return have been had you purchased the stock without margin?

Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.

 

Problem 2-2 Margin (LO3, CFA2)
You purchase 700 shares of 2nd Chance Company stock on margin at a price of $46. Your broker requires you to deposit $16,500.

a.   What is your margin loan amount?

Note: Do not round intermediate calculations.

b.      What is the initial margin requirement?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

 

Problem 2-1 Calculating Margin (LO3, CFA2)
Carson Corporation stock sells for $23 per share, and you’ve decided to purchase as many shares as you possibly can. You have $41,000 available to invest. What is the maximum number of shares you can buy if the initial margin is 70 percent?

Note: Do not round intermediate calculations. Round your answer to the nearest whole number.

 

Problem 1-7 Return Calculations (LO1, CFA1)
A particular stock has a dividend yield of 0.9 percent. Last year, the stock price fell from $68 to $52. What was the return for the year?

Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

 

Problem 1-6 Calculating Variability (LO4, CFA4)
The rates of return on Cherry Jalopies, Incorporated, stock over the last five years were 13 percent, 11 percent, −2 percent, 2 percent, and 15 percent. Over the same period, the returns on Straw Construction Company’s stock were 16 percent, 18 percent, −1 percent, 3 percent, and 10 percent.

Calculate the variances and the standard deviations for Cherry and Straw.

Note: Do not round intermediate calculations. Enter your variance as a decimal rounded to 5 decimal places. Enter your standard deviation as a percent rounded to 2 decimal places.

 

Problem 1-3 Calculating Returns (LO1, CFA1)

Suppose you bought 1,150 shares of stock at an initial price of $56 per share. The stock paid a dividend of $0.66 per share during the following year, and the share price at the end of the year was $51.

a.   Compute your total dollar return on this investment.

Note: A negative value should be indicated by a minus sign.

b.   What is the capital gains yield?

Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

c.   What is the dividend yield?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

d.   What is the total rate of return on the investment?

Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.>