SampleMidterm.1 - LostInTime Mutual Fund started the year...

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ECON 445 Professor Dennis Jansen Spring 2008 Midterm March 19, 2008 Answer all questions. Chapter 3 1. You open a brokerage account and purchase 100 shares of WebDreams Incorporated at $60 per share. You borrow $2,000 from your broker in order to help pay for this purchase, and provide the rest of the funding from your personal funds. Asume the stock pays no dividend, and ignore interest on margin. a. What is the margin on your account at the time your purchase of WebDreams Incorporated is executed? b. If the share price falls to $30 per share by the end of the year, what is the remaining margin on your account? c. If the maintenance margin is 30% and the price has fallen to $30 per share, will you receive a margin call? d. How far can the price of WebDreams Incorporated fall before you will receive a margin call? Chapter 4 2.
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Unformatted text preview: LostInTime Mutual Fund started the year with a net asset value of $10. By the year end, its NAV equaled $9.50. The fund paid year-end distributions of income and capital gains of $1.50. What was the rate of return to an investor holding LostInTime Mutual Fund shares for the entire year? Chapter 5 3. You manage a risky portfolio with an expected return of 15% and a standard deviation of 25%. The Treasury Bill (risk free) rate is 6%. a. You have a client who invests 60% in your risky portfolio and 40% in Treasury Bills. What is the expected return on your client’s complete portfolio? b. For your client described in part (a), what is the standard deviation of her complete portfolio? c. What is the slope of the capital allocation line formed with the risky portfolio and the Treasury Bill? What does that slope mean to you?...
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