6F111-Study Problem Set 1

6F111-Study Problem Set 1 - c Calcuate the stock price...

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6F111 Study Problems Set 1 1. Margin Account. You purchase 100 shares of Stock A using a margin account. The stock price is $60 per share. The Initial Margin is 60% and the maintenance margin is 40%. a. Construct the balance sheet for this transaction for your margin account. b. Assume that the stock price declines to $50 per share. What is the margin in your account for this transaction now? Construct the new balance sheet applicable for this transaction in your margin account. c. Calculate the stock price below which you would receive a margin call on this transaction. 2. Short Sales Account. You sell short 100 shares of stock A whose current price is $60. The initial short-sale margin is 60% and the short-sale maintenance margin is 40%. a. Construct the balance sheet for this transaction. b. Assume the stock price increases to $70 per share. What is your margin in your short- sale account now? Construct the new balance sheet for your short-sale account.
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Unformatted text preview: c. Calcuate the stock price above which you would receive a margin call on this transaction. 3. Price-Weighted Average. Consider the following information: Stock P0 P1 Shares Initial Value Final Value A 25 30 20 500 600 B 100 90 1 100 90 a. Calculate the initial value of the price-weighted index (where the initial divisor equals b. Calculate the final value of the price-weighted index (where the initial divisor equals 2). c. Assume now that Stock B splits 2 for 1. (1) What is the post-split price of Stock B? (2) Calculate the new divisor for the price-weighted stock index following the stock split. (3) Calculate the new price-weighted index value following the stock split. (4) Explain briefly why the divisor changed. 4. Explain briefly why value-weighted indexes might be considered superior to price-weighted indexes....
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This note was uploaded on 09/27/2010 for the course BUSINESS 6F:111 taught by Professor Tongyao during the Spring '09 term at University of Iowa.

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6F111-Study Problem Set 1 - c Calcuate the stock price...

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