Note #7 - I Commissions I Bid-asked spread I Buying on...

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ECON 133 Securities Markets Lecture 7 Jia-Yuh Chen August 10, 2009
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Stock of the Day I I Double down on shorting S&P500
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Corporate Stocks I Separation of ownership and management I Shareholders and board of directors I One share, one vote I Preferred stocks I Dual-class stocks I Shares, prices, and market cap I Return to shareholders I Dividends I Higher stock prices
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Source: Prof. Robert Shiller of Yale University
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Source: Prof. Robert Shiller of Yale University
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Modigliani and Miller (MM) Theory I Stock split and stock dividend I Psychological price range ($20~40) I Delisting concern ( < $1 for 30 days, but suspended for now) I Dilution I Stock repurchase I Treasury stocks I One other way to return to shareholders I between dividend and capital gain, dividend policy is irrelevant.
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Types of Orders I Market orders I Price-contingent orders I Limit orders I Stop orders
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Actual Trading I Transaction costs
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Unformatted text preview: I Commissions I Bid-asked spread I Buying on margin I Buy stocks with borrowed money I Margin = Equity Value of Stock I Initial margin &50% (set by the Fed) I Maintenance margin and the marginal call I Short sale I Sell borrowed stocks I Up-tick rule I Margin = Equity Value of Stock Owed Example 1 You purchased 100 shares of IBM stock on margin (50% initial margin). IBM&s stock price is $100 per share at the time you purchase. Suppose your broker&s maintenance margin is 30%. When will you receive a margin call from your broker? Example 2 You short sell 100 shares of IBM stock at $100 per share. Your broker required 50% margin. How much is required in your account for you to be able to short sell IBM? If IBM&s stock drops to $80 per share and you close your short position, what are your pro±ts? Suppose your broker&s maintenance margin is 30%. When will you receive a margin call?...
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This note was uploaded on 04/07/2010 for the course ECON 133 taught by Professor Chen during the Summer '09 term at University of California, Santa Cruz.

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Note #7 - I Commissions I Bid-asked spread I Buying on...

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