1. Jeff?s Poker Supplies Inc. (JFPS) would like to offer shares to the public for the first time. According to the approved and final prospectus, 1 million shares are being offered for $10 per share after the underwriting discount, for a total of $10 million.;a. What do we call the first public sale of a company?s stock, and in which type of market (primary or secondary) does it occur?;The 1st public sale of a company?s stock is referred to as the initial public offering (IPO). This type sale is offered in the primary market.;b. Who initially purchases all 1 million shares, and what is that process called?;c. Suppose that JFPS opens at $19 per share on its first day. Does Jeff?s Poker Supplies earn $19 million, or just the original $10 million? Explain.;2. Today, Mike buys 100 shares of Kraft Foods (KRFT) on the Nasdaq exchange for $55.22, resulting in a purchase price of $5,522. Assume that this is *not* the first time these shares have been offered to the public. Does Kraft end up with this money? If not, who does?;3. Greg, a U.S. citizen, purchased 100 shares of Bayer on the Frankfurt stock exchange. Bayer was trading for ?55, and the exchange rate was ?1 = $1.5778.;a. How much (in dollars) did Greg need to purchase the 100 shares?;b. Suppose that Greg now wants to sell his shares, which have increased in price to ?58, and the exchange rate is now ?1 = $1.3036. How much will Greg receive from the sale (in dollars)?;c. In addition to the exchange rate risk shown in this example, what other added risks are there in purchasing a stock directly from a foreign market? Give at least two and explain.;d. If you want to reduce these added risks, what are some ways to invest indirectly in foreign companies? Give at least two ways and explain.;4. Marie wants to use a margin account to buy 400 shares of AT&T (ATT). The stock is trading at $30, making an investment cost of $12,000.;a. If Marie wants to open the position with a 60% margin, then how much of the $12,000 will be borrowed?;b. Suppose the share price drops to $14. What is the total value of her shares? What is her margin in this position now? Show work. (Hint: Use the Basic Margin Formula);c. What must Marie do if her margin drops below 25%?;5. Ned purchased stock with a value of $30,000 using 50% margin. He later sold the stock when it had a value of $40,000. The stock paid $600 in dividends while he was holding it. Ned paid $1,500 in interest on the margin loan.;a. Find the return on invested capital.;b. Suppose instead that Ned had not used margin, therefore paying the full $30,000 to buy the stock with his own money. The dividend and selling price remain the same. Find the return on invested capital, and explain why it is lower.;6. Sam wants to short sell 300 shares of Wal-Mart (WMT), trading for $77 a share. There is a 50% initial margin requirement on short sales.;a. How can Sam sell shares he doesn?t own? In other words, where do the shares come from?;b. What is Sam?s initial margin deposit and total deposit with the broker? Show work or explain.;c. What is Sam?s profit if the price of Wal-Mart falls to $68? Show work or explain.
Paper#24428 | Written in 18-Jul-2015Price : $37