Suppose you have two options for buying total 500 stocks. A: You can buy 1 stock from each of the 500 companies listed in S&P 500. B: You can buy 100 stocks from each of the top 5 companies (based on your judgement and study) listed in S&P 500. Based on empirical evidence you are most likely to gain more from which option?

Suppose you have two options for buying total 500 stocks. A: You can buy 1 stock from each of the 500 companies listed in S&P 500. B: You can buy 100 stocks from each of the top 5 companies (based on your judgement and study) listed in S&P 500. Based on empirical evidence you are most likely to gain more from which option?

Name: Suppose you have two options for buying total 500 stocks. A: You
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Description: Suppose you have two options for buying total 500 stocks. A: You can buy 1 stock from each of the 500 companies listed in S&P 500. B: You can buy 100 stocks from each of the top 5 companies (based on your judgement and study) listed in S&

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 5FPE: Assume that you’ve just inherited $500,000 and have decided to invest a big chunk of it ($350,000,...

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Assume that you’ve just inherited $500,000 and have decided to invest a big chunk of it ($350,000, to be exact) in common stocks. Your objective is to build up as much capital as you can over the next 15 to 20 years, and you’re willing to tolerate a “good deal’’ of risk. What types of stocks (blue chips, income stocks, and so on) do you think you’d be most interested in, and why? Select at least three types of stocks and briefly explain the rationale for selecting each. Would your selections change if you were dealing with a smaller amount of money—say, only $50,000? What if you were a more risk-averse investor?
Which of the following would offer the best return on investment? Assume that you buy $5,000 in stock in all three cases, and ignore interest and transaction costs in all your calculations. Also assume that decimal number of stocks can be bought so all the amount discussed is invested into the stocks in all three cases. Buy a stock at $90 without margin, and sell it a year later at $105. Buy a stock at $70 with 50% margin (50% loan), and sell it a year later at $85. Buy a stock at $65 with 25% margin (75% loan), and sell it a year later at $80. Alternative offers the best return on the investment.
Suppose you have 100 common shares of Tillman Industries. The EPS is $4.00, theDPS is $2.00, and the stock sells for $60 per share. Now Tillman announces a twofor-one split. Immediately after the split, how many shares will you have, what willbe the adjusted EPS and DPS, and what would you expect the stock price to be?
An investor tells their broker to short 1,000 shares of a stock that is currently priced at $50. Is the investor betting that the price will go up or down in this scenario? Where do the shares for a short sale come from?
Assume you purchased 200 shares of GE common stock on margin at $70 per share from your broker. If the initial margin is 55%, how much did you borrow from the broker? Assume you sold short 100 shares of common stock at $40 per share. The initial margin is 50%. What would be the maintenance margin if a margin call is made at a stock price of $50?
You are planning to purchase 100 shares of preferred stock and must choose between stock A and stock B.Stock A pays an annual dividend of $4.50 and is currently selling for $35.Stock B pays an annual dividend of $4.25 and is currently selling for $36.If your required return is 12%, which stock should you use?
Suppose you own 1,000 common shares of Laurence Incorporated. The EPS is $12.00, the DPS is $5.00, and the stock sells for $75 per share. Laurence announces a 2-for-1 split. Immediately after the split, how many shares will you have? Round your answer to the nearest whole number. shares What will the adjusted EPS and DPS be? Round your answers to the nearest cent. EPS: $ DPS: $ What would you expect the stock price to be? Round your answer to the nearest cent.
Assume that you own 1,500 shares of $10 par value common stock and the company has a 5-for-1 stock split when the market price per share is $30. What will probably happen to the market price per share of the stock and the par value per share of the stock? Multiple Choice A) Market price per share will be about $6 per share, and par value will be $2 per share. B) Market price per share will be about $6 per share, and par value will be $50 per share. C) Market price per share will be about $150 per share, and par value will be $2 per share. D) Market price per share will be about $150 per share, and par value will be $50 per share.
You want to purchase IBM stock at $130 from your broker using as little of your own money as possible. If initial margin is 50% and you have $19, 600to invest, how many shares can you buy?
If they decide to issue $1 par common stock and anticipate an initial market price of $80 per share, how many shares will they need to issue to raise $4,000,000?
Suppose that the last sale of Company X stock was at a price of $50. Further suppose that an investor wishes to place a market order to purchase 25,000 shares of Company X stock. What is the volume weighted average price that the investor will trade at in each of the market? What if the investor purchase 120,000 shares instead 25,000? Market Depth - Market A vs B Market AMarket B#SharesOffer ($)#SharesOffer ($)30,00050.0010,00050.0040,00050.0210,00050.0110,00050.0570,00050.0320,00050.0680,00050.0430,00050.0760,00050.0510,00050.0940,00050.05
An investor with a required return of 14 percent for very risky investment in common stock has analyzed three firms and must decide which, if any, to purchase firm A B C current earnings $2.00 $3.20 $7.00 current dividend $1.0 $3.00 $7.50 expected annual growth rate in 7% 2% -1% dividends and earnings Current market price $23 $47 $60 what is the maximun price that investor should pay for each stock based on the dividend growth model? b. if the investor does buy stock A, what is the implied percentage return? c. if the appropiate P/E ratio is 12, what is the maximun price the investor should pay for each stock? would your answer be differeny if the appropiate P/E were 7? d. what…