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Unformatted text preview: 1-5DCCBC6-10BCBAB11-15BCBCD16-20CCDDBSolution to Mid Term FINA 469Part I. Multiple ChoicePart II: Calculation ProblemsBoth results and steps should be provided to get full credit1. You sell short 200 shares of Doggie Treats Inc. which are currently selling at $25 per share. You post the 50% margin required on the short sale. If your broker requires a 30% maintenance margina. At what stock price will you get a margin call? (You earn no interest on the funds in your margin account and the firm does not pay any dividends) (6)b. What is the rate of return if the stock price of Doggie Treats Inc. goes down to 20 dollars? (6)c. If you want to control your loss to be below $1000, what kind of order could you submit to the broker? Please indicate the type of the order, and the price that you will specify in the order. (6)a. Equity value/Stock Value=(200*25+0.5*200*25-200*P)/(200*P)=0.3, so P=28.85b. Profits=200*25+0.5*200*25-200*20 - 0.5*200*25=1000Rate of Return = 1000/(0.5*200*25)= 40%c. Stop buy orderProfits=200*25+0.5*200*25-200*P - 0.5*200*25>-1000, so P is 302. Suppose you pay $9,400 for a $10,000 par Treasury bill maturing in six months. 2....
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- Spring '08