Project #34234 - Finance

2. Lauren has a margin account and deposits $ 50,000. Assume the prevailing margin require-ment is 40 percent, commissions are ignored, and the Gentry Wine Corporation 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 stock i. rises to $ 45? ii. falls to $ 25? c. If the maintenance margin is 30 percent, 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 percent margin when the stock is selling at $ 20 a share. The broker charges a 10 percent annual interest rate, and commissions are 3 percent of the 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 percent and 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 percent interest on the money borrowed. What is your rate of return on the investment? 5. Explain how a price- weighted index and a value- weighted index adjust for stock splits.
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Subject Business
Due By (Pacific Time) 06/28/2014 12:00 am
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