Global Investments Essay

685 WordsAug 30, 20133 Pages
1. Recently, you sold 1,000 shares of stock for \$21,400. The sale was a short sale with an initial margin requirement of 60 percent. The maintenance margin is 30 percent. The stock is currently trading at \$27.50 a share. What is your current margin position in this stock? Assets = \$21,400 Equity = \$21,400 x .60 = \$12,840 Short position = 1,000 x \$27.50 = \$27,500 Account equity = \$21,400 + \$12,840 - \$27,500 = \$6,740 Margin position = \$6,740 / \$27,500 = 24.51 % 2. Matt short sold 500 shares of Tall Pines stock at \$19 a share at an initial margin of 65 percent. The maintenance margin is 35 percent. What is the highest the stock price can go before he receives a margin call? Assets = 500 x \$19 = \$9,500 Equity = \$9,500 x .65 =…show more content…
What if the stock price declines by 25%? (note: 3% is annualized effective rate). 900 x \$62.20 = \$55,980 Assets \$55980 x .70 = \$41985 Equity \$55980 – \$41985 = \$13995 Liability 3 % of 13995 = 209.93 \$14204.93 + \$41985 = \$56189.93 Stock price increases by 25% = \$77.75 per share Stock price decreases by 25% = \$46.65 per share \$69,975 -\$56189.93 = \$13785.07/\$56189.93 = 24.53% when increased by 25% \$41985 - \$56189.93 = - \$14,204.93/\$56189.93 = -25.28% when decreased by 25% 6. Assume the DJIA closed at 12,487 last night. The divisor is 0.123017848. Assume that 29 of the stocks in the index were unchanged today. One stock increased in value from \$54.80 a share yesterday to \$56.90 a share today. What is the DJIA index value at the close of trading today? Initial value = 30 x \$54.80 = \$1644 Final value = (29 x \$54.80) + \$56.90 = \$1646.10 Initial index value = \$1644/30 = 54.8 Final index value = \$1646.10/30 = 54.87 7. An index consists of the following securities Stock | Shares Outstanding | Yesterday's Price | Today's Price | A | 1,000 | \$32 | \$38 | B | 4,000 | \$22 | \$23 | C | 6,000 | \$57 | \$55 | * Suppose the index is price-weighted. Current index divisor is 2.7. If after today, Stock B experience a 3-for-1 split. What is the new divisor? (\$32+\$22+\$57)/3 = 37 \$23/3 = \$7.6 (\$38+\$7.6+\$55)/d = 37 d = 2.72 * If the index is value-weighted, what is the index level? Use yesterday as a base. Assume