hw2sol - Investment Analysis (FIN 383) Fall 2010 Homework 2...

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Investment Analysis (FIN 383) Fall 2010 Homework 2 Instructions: please read carefully You should show your work how to get the answer for each calculation question to get full credit The due date is Tue, Sep 28, 2010. Late homework will not be graded. Name(s): Student ID
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Chapter 3 1. Market orders are buy or sell order that will be executed immediately at _______________ prices a. the best b. current market c. the highest d. the lowest 1. b 2. Trading of exiting stock take place in the _______________. a. secondary market b. third market c. forth market d. All of the above. 2. a 3. You purchased 100 shares of AAA common stock on margin for $40 per share. The initial margin is 60% and the stock pays no dividend. Your rate of return would be _______________ if you sell the stock at $43 per share a. -12.5% b. -7.5% c. 7.5% d. 12.5% 3.d Intial position Stock 4000 Borrowed 1600 Equity 2400 When stock price is 43, the position is Stock 4300 Borrowed 1600 Equity 2700 Return = (2700 – 2400)/ 2400 = 12.5% 4. The _______________ price is the price a dealer is willing to purchase a security. a. Bid b. Ask c. Limit d. Offering 4. a 5. You purchased ABC stock at $50 per share. The stock is currently selling at $49. Your potential loss could be reduced by placing a _______________. a. limit-buy order b. limit-sell order c. market order d. stop-loss order 5. d
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6. The Nasdaq Stock Market is a _______________. a. primary market b. secondary market c. dealer market d. Both B and C above. 6. d 7. You purchased 400 shares of XYZ common stock on margin at $20 per share. Assume the initial margin is 60% and the maintenance margin is 30%. You would get a margin call if the stock price is below _______________. Assume the stock pays no dividend and ignore interest on margin. a. $15.71 b. $11.43 c. $13.57 d. $10.14 7. b Initial position: Stock 400*2 = 800 borrowed 3200 Equity 4800 Let P be the price you would get a call Position Stock 400P borrowed 3200 Equity 400P-3200 To get a margin cal (400P – 3200)/400P = 0.3 P = 11.43 So when P is below 11.43, you will get a margin call 8. You sold short 200 shares of XYZ common stock at $40 per share with an initial margin of 60%. Your initial investment was _______________. a. $3,200 b. $4,800 c. $6,000 d. $8,000 8. b Cash (Sale) 8000 borrowed 8000 Cash (deposit) 4800 Equity 4800 9. In buying on margin, the margin is the _______________ of the investor's account a. loan amount b. equity value c. total value d. none of the above 9. b
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10. In a _______________, the investment bankers purchase securities from the issuing company and then resell to the public. a. best-efforts agreement b. total package agreement c. firm commitment d. private placement 10. c 11. Electronic Communication Networks are private computer networks that link _______________. a.
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This note was uploaded on 10/20/2010 for the course FIN FIN383 taught by Professor Duongnguyen during the Spring '09 term at UMass Dartmouth.

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hw2sol - Investment Analysis (FIN 383) Fall 2010 Homework 2...

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