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Finance 261
Practice Set 2 – Supplementary Examples
1.
Assume that an investor shorts 200 shares of stock at $7.50 per share. At what
price must the investor cover the short sale to realise a gross profit of
$500?
2.
Consider the three stocks in the following table.
P
t
represents price at time t in
cents, and Q
t
represents the number of shares outstanding at time t.
P
o
Q
o
P
1
Q
1
A
B
C
90
50
100
100
200
200
95
45
110
100
200
200
a.
Calculate the rate of return on the following indexes of the three stocks
for the period t = 0 to t = 1.
i)
a price weighted index.
ii)
a market value weighted index.
b.
Now assume that company A paid a dividend of 10 cents per share;
company B paid a dividend of 6 cps. during the period and that a
strategic shareholder holds 30% of company C’s shares. These shares
are not available for sale. Calculate the rate of return on a gross value
weighted index of the three stocks over the period t=0 to t=1 where the
index is weighted by free float shares.
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This note was uploaded on 10/17/2010 for the course FF f taught by Professor F during the Spring '10 term at Clayton.
 Spring '10
 f

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