Pset 2 - Econ 3213 Professor Irasema Alonso Problem Set#2...

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Econ 3213, Professor Irasema Alonso Problem Set #2 Due on Thursday February 8th 1. Suppose today is 1/22/2018. The data on a T-bill that matures on 3/1/2018 as reported by the WSJ online is given below. Suppose a dealer buys 500 of these T-bills with face value of $10,0000 at the bid price and sells them at the ask price. How much are the profits of the dealer? Asked Maturity Bid Asked Chg yield 3/1/2018 1.328 1.318 0.005 1.338 Source: Compiled from data from The Wall Street Journal and from Settlement (or beginning date) of 01/22/2018 2. Suppose that Gap currently is selling at $40 per share. You buy 500 shares using $15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%. (a) What is the percentage increase in the net worth of your brokerage account if the price of Gap immediately changes to: (i) $44; (ii) $40; (iii) $36? What is the relationship between your percentage return and the percentage change in the price of Gap?
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