Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 3, Problem 2CP
Summary Introduction
To select: the amount received for each share when the price drop to $50 is to be determined where 100 share of stock sell at $55 while current price is $62.
Introduction : The selling of stock when the price falls below the stipulated level is called as stop-loss orders.
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If you place a stop-loss order to sell at $52 on a stock currently selling for$55.50 per share, what is likely to be the minimum loss you willexperience on 100 shares if the stock price rapidly declines to $49.50 pershare? Explain. What if you had placed a stop-limit order to sell at $52,and the stock price tumbled to $49.50?
suppose you short sell 100 shares of IBX, now selling at $172 per share. (a) what is your maximum possible loss? (b) what happens if you simultaneously place a stop-buy order at $182?
Suppose you decide that the Bear Company stock is selling at too high a price at its current $50 per share price. You are convinced that the price of Bear stock will fall in the next couple of months, so you decide to sell 100 shares of Bear stock short. Ignoring transactions costs, if the Bear Company does not pay dividends, what is your profit or loss if the stock’s price goes to:
$40 and you buy at that price to cover your short?
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- Suppose that an investor purchases the common stock at the current market price of $58/share and simultaneously sells for $12 a call to buy the shares at the strike price of $50. At the expiration of the call, price of stock is $77. What is the net profit on the position for this investor? (Round your answer the nearest dollar, do not enter with the dollar sign)arrow_forwardSuppose that you sell short 1,000 shares of Xtel, currently selling for $20 per share, and give your broker $15,000 to establish your margin account.a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $22; (ii) $20; (iii) $18? Assume that Xtel pays no dividends.b. If the maintenance margin is 25%, how high can Xtel’s price rise before you get a margin call?c. Redo parts (a) and (b), but now assume that Xtel also has paid a year-end dividend of $1 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid.arrow_forwardWhat about for these? (b) Suppose you have purchased some GameStop shares on margin at $5per share. You ask your broker to put in a limit sell order at $7, anda stop loss order at $4.50.i. What will happen if the stock price falls to $4.50?ii. What will happen if the stock price rises to $7?iii. Now suppose you had instead short-sold your GameStop shares(as in the first part of the question). What instructions mightyou give to your broker to minimise your losses and lock in yourgains?arrow_forward
- Suppose that you sell short 1000 shares of Xtel, currently selling for $50 per share, and give your broker $40,000 to establish your margin account. a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $55; (ii) $50; (iii) $46? Assume that Xtel pays no dividends. (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) b. If the maintenance margin is 25%, how high can Xtel’s price rise before you get a margin call? (Round your answer to 2 decimal places.) c. Redo parts (a) and (b), but now assume that Xtel also has paid a year-end dividend of $2 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)arrow_forwardIf you place a stop-loss order to sell 500 shares of Nedbank at R130 when the current price is R135, how much will you receive for each share if the price drops to R127? a. Close to R127 ○ b. Close to R130 ○ c. Close to R135 d. Won't sell because the price is too lowarrow_forwardAn investor purchases a stock for $38 and a put for $.50 with a strike price of $35. The investor sells a call for $.50 with a strike price of $40. What is the maximum profit and loss for this position? (Loss amount should be indicated by a minus sign.) Maximum profit Maximum loss $ GAGAarrow_forward
- You sell 100 shares of stock short for 40$ per share. You want to limit your loss on this transaction to no more than 500$. What order should you place?arrow_forwardYou own 200 shares of Shamrock Enterprises that you bought at $25 a share. The stock is now selling for $45 a share.a. You put in a stop loss order at $40. Discuss your reasoning for this action. b. If the stock eventually declines in price to $30 a share, what would be your rate of re-turn with and without the stop loss order?arrow_forwardYou sell 200 shares of a stock short for $63 per share. You want to limit your loss on this transaction to no more than $1,500. What order should you place?arrow_forward
- You purchased JNJ stock at $50 per share. The stock is currently selling at $65. Your gains may be protected by placing a A. stop-buy order. B. market order. C. None of the options are correct. D. limit-buy order. E. limit-sell order.arrow_forwardA stock is currently selling for $40.00 a share. What is the gain or loss on the following transactions? Use a minus sign to enter the amount as a negative value. Round your answers to the nearest cent. a. You take a long position and the stock's price declines to $37.35. -10.65 b. You sell the stock short and the price declines to $37.35. 10.65 c. You take a long position and the price rises to $50.65. $ 2.65 d. You sell the stock short and the price rises to $50.65. -2.65arrow_forwardYou purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below what price? (Assume the stock pays no dividends and ignore interest on the margin loan.)arrow_forward
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