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FIN 640 CHAPTER 4 & CHAPTER 5 Investment Analysis & Portfolio Management




Question;Problem #2-4Robert McAlister2. Lauren has a margin account and deposits $50,000. Assume the prevailing margin requirement is 40%, commissions are ignored, and the Gentry Wine Corpration is selling at $35 per share.a. How many shares can Lauren purchase using the maximum allowable margin?b. What is Lauren's profit (loss) if the price of Gentry's stocki. rises to $45?ii. Falls to $25?c. If the maintenance margin is 30%, to what price can Gentry Wine Fall before Lauren will receive a margin call?3. Suppose you buy a round lot of Francesca Industries stock on 55% margin when the stock is selling a $20 a share. The broker charges a 10% annual interest rate, and commissions are 3% ofthe stock value on the purchase and sale. A year later you receive a $0.50 per share dividend and sell the stock for $27 a share. What is your rate of return on Francesca Industries?4. You decide to sell short 100 shares of Charlotte Horse Farms when it is selling at its yearly high of $56. Your broker tells you that your margin requirement is 45% nd that the commission on the purchase is $155.While you are short the stock, Charlotte pays a $2.50 per share dividend. At the end of one year, you buy 100 shares of Charlotte at $45 to close out your position and are charged a commission of $145 and 8% intereston the money borrowed. What is your rate of return on the investment?CHAPTER 4 & CHAPTER 5 FIN640 Investment Analysis & Portfolio ManagementProblem #1Robert McAlister1. You are given the following information regarding prices for a sample of stocksStockABCNumber of Shares1,000,00010,000,00030,000,000PriceTT+1608020183525a. Construct a price-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T + 1.b. Construct a value-weighted index for these three stocks, and compute the percentage change in the index for the period from T to T+1c. Compute the geometric mean of the percentage changes in Part b. Discuss how how this result compares to the answer in Part b.


Paper#48044 | Written in 18-Jul-2015

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