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exercise2_solutions

# exercise2_solutions - Suggested Solutions to Selected...

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Suggested Solutions to Selected Problems Chap 3-4 Fin 367 Spring 2008 Professor Bing Han Solution to Chap3 problems 7. a. You buy 200 shares of Telecom for \$10,000 (you invest \$5000, and borrow another \$5000). These shares increase in value by 10%, or \$1,000. You pay interest of: (0.08 × 5,000) = \$400. The rate of return will be: 000 , 5 \$ 400 \$ 000 , 1 \$ - = 0.12 = 12% b. The value of the 200 shares is 200P. Equity is (200P – \$5,000). You will receive a margin call when: P 200 000 , 5 \$ P 200 - = 0.30 when P = \$35.71 or lower 12. The broker is instructed to attempt to sell your Marriott stock as soon as the Marriott stock trades at a bid price of \$38 or less. Here, the broker will attempt to execute, but may not be able to sell at \$38, since the bid price is now \$37.25. The price at which you sell may be more or less than \$38 because the stop-loss becomes a market order to sell at current market prices. Chapter 4:

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exercise2_solutions - Suggested Solutions to Selected...

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