INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Question
Chapter 20, Problem 11PS
a.
Summary Introduction
To compute: The value of portfolio in January if stock price ends up at $30 and compare the value if you hold the shares.
Introduction:
Value of the portfolio:It is also called as the portfolio value. The present value on a specific date derived after calculating the cash availability for debt service at a certain discounted rate can be termed as value of the portfolio.
b.
Summary Introduction
To compute: The value of portfolio in January if stock price ends up at $40
Introduction:
Value of the portfolio:It is also called as the portfolio value. The present value on a specific date derived after calculating the cash availability for debt service at a certain discounted rate can be termed as value of the portfolio.
c.
Summary Introduction
To compute: The value of portfolio in January if stock price ends up at $50
Introduction:
Value of the portfolio:It is also called as the portfolio value. The present value on a specific date derived after calculating the cash availability for debt service at a certain discounted rate can be termed as value of the portfolio.
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Imagine that you are holding 5,000 shares of stock, currently selling at $40 per share. You are ready to sell the shares but would prefer to put off the sale until next year for tax reasons. If you continue to hold the shares until January, however, you face the risk that the stock will drop in value before year-end. You decide to use a collar to limit downside risk without laying out a good deal of additional funds. January call options with a strike of $45 are selling at $2, and January puts with a strike price of $35 are selling at $3. What will be the value of your portfolio in January (net of the proceeds from the options) if the stock price ends up at: (a) $30, (b) $40, or (c) $50? Compare these proceeds to what you would realize if you simply continued to hold the shares.
The stock of Suncor Energy is currently trading for $36 per share. An investor expects the stock price to move up in the next two months, and decided to invest $7, 200 in this stock. If the investor invests all the money in the stock, how much is the profit or loss if the stock price in two months turns out to be i) 40 or ii) 32? If the investor invests all the money in call options with a strike price of $35 and price of the call is $2 per share, how much is the profit or loss if the stock price in two months turns out to be i) 40 or ii) 32?
You think that the stock of Fleetwood Corp is likely to rise within the next six months from its current price ($19.00 bid and $20.00 ask), and you want to maximize the amount of profit from your investment.
So, you will use a margin account to borrow on margin in order to buy as many shares as you can. Your initial margin requirement is 45%, and you have $90,000 of your own money to invest in the shares. The minimum (maintenance) margin is 30%, and Fleetwood does not pay dividends. (Ignore interest for this problem.)
If you buy Fleetwood on margin with the maximum margin loan, what is the maximum number of shares you can buy?
Suppose you bought the maximum number of shares of Fleetwood as in (1).
Assume that immediately after your purchase, Fleetwood’s share price drops to $18.00 per share. Calculate your new margin. Will you receive a margin call?
How far can the price drop before you will receive a margin call?
If the stock price falls to $14.00, you calculate that you would…
Chapter 20 Solutions
INVESTMENTS (LOOSELEAF) W/CONNECT
Ch. 20 - Prob. 1PSCh. 20 - Prob. 2PSCh. 20 - Prob. 3PSCh. 20 - Prob. 4PSCh. 20 - Prob. 5PSCh. 20 - Prob. 6PSCh. 20 - Prob. 7PSCh. 20 - Prob. 8PSCh. 20 - Prob. 9PSCh. 20 - Prob. 10PS
Ch. 20 - Prob. 11PSCh. 20 - Prob. 12PSCh. 20 - Prob. 13PSCh. 20 - Prob. 14PSCh. 20 - Prob. 15PSCh. 20 - Prob. 16PSCh. 20 - Prob. 17PSCh. 20 - Prob. 18PSCh. 20 - Prob. 19PSCh. 20 - Prob. 20PSCh. 20 - Prob. 21PSCh. 20 - Prob. 22PSCh. 20 - Prob. 23PSCh. 20 - Prob. 24PSCh. 20 - Prob. 25PSCh. 20 - Prob. 26PSCh. 20 - Prob. 27PSCh. 20 - Prob. 28PSCh. 20 - Prob. 29PSCh. 20 - Prob. 30PSCh. 20 - Prob. 31PSCh. 20 - Prob. 1CPCh. 20 - Prob. 2CPCh. 20 - Prob. 3CPCh. 20 - Prob. 4CPCh. 20 - Prob. 5CP
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