Calculations:
None necessary
Answer:
A market order has:
Price uncertainty but not execution uncertainty.
Both price uncertainty and execution uncertainty.
Execution uncertainty but not price uncertainty.
Price uncertainty but not execution uncertainty.
Calculations:
None necessary
Answer:
Where would an illiquid security in a developing country most likely trade?
Broker markets.
Broker markets.
Data
shares 300
a margin 8000
price fall 30
value 9000
Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $40 per share.
Data
shares 1000
$ per share 40
margin req 0.5
price rise 40 50
div 2
Old Economy Traders opened an account to short sell 1,000 shares of Internet Dreams at $40 per share. The
initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet
Dreams has risen from $40 to $50, and the stock has paid a dividend of $2 per share.
a.What is the remaining margin in the account? (Omit the “$” sign in your response.)
b.If the maintenance margin requirement is 30%, will Old Economy receive a margin call?
c.What is the rate of return on the investment?
(Negative value should be indicated by a minus sign. Omit the
initial margin 20000
loss from price rise 10000
loss from div repay 2000
margin req 0.3
Limit Buy Orders Limit Sell Orders
Price Shares Price Shares
$ 49.75 500 $ 50.25 100
Consider the following limit-order book for a share of stock. The last trade in the stock
occurred at a price of $50.
Limit Buy OrdersLimit Sell
Orders Price Shares Price Shares $49.75 500 $50.25 100 49.50 800 51.5
0 100 49.25 500 54.75 300 49.00 200 58.25 100 48.50 600
Data
price 50
equity 5000
borrow 5000
r 0.08
total invest 10000
shares 200
You are bullish on Telecom stock. The current market price is $50 per share, and you have
$5,000 of your own to invest. You borrow an additional $5,000 from your broker at an interest
rate of 8% per year and invest $10,000 in the stock.
a.What will be your rate of return if the price of Telecom stock goes up by 10% during the
price up 0.1 OR interest paid back 400
new price 55 a return 0.12
new total 11000
new equity 6000
total return 0.2
maintenance margin 0.3
Data
shares 100
price 50
Problem 3-10
You are bearish on Telecom and decide to sell short 100 shares at the current market price of
$50 per share.
a.How much in cash or securities must you put into your brokerage account if the broker’s
b.How high can the price of the stock go before you get a margin call if the maintenance
Data
current sale 20 total cost 20000
shares buy 1000
own money 15000
borrow 5000
current sale 20 total cost 20000
shares buy 1000
own money 10000
borrow 10000
margin rate 0.08
margin call 0.25
Suppose that Intel currently is selling at $20 per share. You buy 1,000 shares using $15,000 of your own money, borrowing the re
mainder of the purchase price from your broker. The rate on the margin
loan is 8%.
a.What is the percentage increase in the net worth of your brokerage account if the price of Intelimmediately changes to: (i) $22; (ii) $20; (iii) $18? What is the relationship between your percentage
return and the percentage change in the price of Intel? (Leave no cells blank – be certain to enter “0” wherever required. Negative values should be indicated by a minus sign. Round your answers to
2 decimal places. Omit the “%” sign in your response.)
margin rate 0.08
Data
sell short 1000 value 20000
selling at 20
give to broker 15000
div 1
must now pay 1000
c i 22 -0.2
ii 20 -0.06667
Suppose that you sell short 1,000 shares of Intel, currently selling for $20 per share, and give your broker $15,000 to establish your margin account.
a.If you earn no interest on the funds in your margin account, what will be your rate of return after 1 year if Intel stock is sel
ling at: (i) $22; (ii) $20; (iii) $18? Assume
that Intel pays no dividends. (Round your answers to 2 decimal places. Negative values should be indicated by a minus sign. Leave no cells blank – be certain to
enter “0” wherever required. Omit the “%” sign your response.)
Data
Bid 39.95 Ask 40.05
stop-loss 40
Here is some price information on Marriott:
BidAsked Marriott 39.95 40.05
Here is some price information on Fincorp stock. Suppose that Fincorp trades in a dealer market. BidAsked55.2555.50 a.Suppose you have
submitted an order to your broker to buy at market. At what price will your trade be executed? (Round your answer to 2 decimal places. Omit
the “$” sign in your response.)
Price$ b.Suppose you have submitted an order to sell at market. At what price will your trade be executed?(Round your answer to 2
shares 1000
b p 30.77
You’ve borrowed $20,000 on margin to buy shares in Disney, which is now selling at $40 per share. Your account
starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price falls
to $35 per share.
Data
shares 100
On January 1, you sold short one round lot (that is, 100 shares) of Four Sisters stock at $21 per share. On March 1, a
dividend of $2 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $15 per
share. You paid 50 cents per share in commissions for each transaction.
What is the value of your account on April 1? (Omit the “$” sign in your response.)