BU111 Spring 2012 - Supplementary Questions

# BU111 Spring 2012 - Supplementary Questions - Wilfrid...

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Wilfrid Laurier University BU111 Final Exam-Aid Review Package Spring 2013 Students Offering Support is sponsored by:

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Students Offering Support: Wilfrid Laurier University Raising Marks. Raising Money. Raising Roofs. www.schoolsos.com Students Offering Support Students Offering Support is a charitable sustainable social venture that develops and supports SOS chapters residing within post-secondary schools across North America. Each University SOS chapter raises money to raise roofs through raising marks during our 'Exam- AID' group review sessions, taught and coordinated by student volunteers for university and college students. Each year, the money raised is spent creating sustainable education projects in developing nations on annual outreach trips. Since 2004, over 2,000 SOS volunteers have tutored over 25,000 students and raised more than \$900,000 for various development projects across Latin America. To learn more about Students Offering Support, please visit our website at: www.studentsofferingsupport.ca Follow Us! @SOSheadoffice www.fa cebook.com/StudentsOfferingSupport www.youtube.com/user/StudsOfferingSupport
Students Offering Support: Wilfrid Laurier University Raising Marks. Raising Money. Raising Roofs. www.schoolsos.com The Straight Market Order Steps to Success: 1. Calculate the purchase price = #shares x (market price per share at the time of purchase) 2. Calculate the purchase commission = 2% of the purchase price 3. Calculate the total cost = purchase price + purchase commission 4. Calculate the sale price = #shares x (market price per share at the time of sale) 5. Calculate the sale commission = you 2% of the return on the sale 6. Calculate the total return = sale price sale commission 7. Calculate the capital gain (if this # is negative it is a capital loss) = total return total cost 8. Calculate the yield = capital gain ÷ purchase price Problem 1 As a self-proclaimed Facebook junkie, you decide to purchase 1,000 shares of the company during its Initial Public Offering (IPO). Shares are offered at a price of \$38 each. However, Facebook fails to live up to its hype and the share price declines. To limit your losses, you decide to sell your shares at a price of \$26. Assume that brokerage commissions are 2% for both the purchase and sale of the shares. a) What was the total cost of the 1,000 shares? b) What was the total return from your broker when you sold the shares? c) What is your capital loss and yield from the transaction? Problem 2 Recognizing the concerns over shrinking oil reserves, you decide to invest in the Canadian company Innergex Renewable Energy. You purchase 500 shares at a price of \$6 per share. Later, the share price rises to \$9 and you decide to purchase an additional 250 shares. The next year, you sell the shares at \$12 per share. Assume that brokerage commissions are 2%.

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