Exam 2: The Investment Process

Louis purchased 300 shares of stock on margin for $22.15 a share and sold the shares eleven months later for $24.50 a share.The initial margin requirement was 75 percent and the maintenance margin was 30 percent.The interest rate on the margin loan was 8.5 percent.He received no dividend income.What was his holding period return?

Tony purchased 100 shares of T-Rex stock for $43 a share.On the same day,Sam also purchased 100 shares of T-Rex stock for $43 a share.Tony paid cash for his purchase while Sam used margin.The initial margin requirement on this stock is 60 percent while the maintenance margin is 40 percent.Both Tony and Sam sold their shares after eight months at a price of $40 a share.The stock pays no dividends.Tony had a holding period percentage return of ________ percent as compared to Sam's ________ percent return.Ignore margin interest and trading costs.

Jennifer believes that Northern Wine stock is going to decline in value so she is short selling 1,000 shares at $32 a share.Her initial margin requirement is 70 percent and the maintenance margin is 30 percent.What is the highest the stock price can go before she receives a margin call?

Seven months ago,you purchased 400 shares of stock on margin.The initial margin requirement on your account is 60 percent and the maintenance margin is 30 percent.The call money rate is 4.8 percent and you pay 1.85 percent above that rate.The purchase price was $16 a share.Today,you sold these shares for $18.00 each.What is your annualized rate of return?

Elizabeth short sold 400 shares of stock at $72 a share.One month later,she covered the short at a price of $68.What was her total dollar return on this investment?

This morning,Josh sold 800 shares of stock that he did not own.This sale is referred to as a:

Kay plans to retire in two years and wishes to liquidate her account at that time.Kay has a ________ constraint.

Neshoba Industries stock is selling for $33 a share.You would like to purchase as many shares of this stock as you can.Your margin account currently has available cash of $7,000 and the initial margin requirement is 65 percent.What is the maximum number of shares you can buy?

Sam is purchasing 800 shares of RPT,Inc.,stock at a price per share of $15.50.What is the minimum amount the Federal Reserve will require Sam to pay in cash for this purchase?

Sarah has a brokerage account with Jeff,who is a money manager with Downtown Brokers.Sarah pays an all-inclusive annual fee to the firm and Jeff manages her funds.She pays no trading costs or commissions.Which one of the following best describes this type of account?

Sam purchased 500 shares of Microsoft stock which he has pledged to his broker as collateral for the loan in his margin account.This process of pledging securities is called:

Martin has an investment account with William,who is a broker with City Brokerage.Martin believes that William has mishandled his account by churning it.If he files a complaint against William seeking compensation,the case will most likely be decided by:

You currently have $5,000 in cash in your brokerage account.You decide to spend $8,000 to purchase shares of stock and borrow $3,000 from your broker to do so.Which type of brokerage account do you have?

Mary purchased 100 shares of Best Foods stock on margin at a price of $49 a share.The initial margin requirement is 65 percent and the maintenance margin is 30 percent.What is the lowest the stock price can go before Mary receives a margin call?

You purchased 1,000 shares of stock at $42 a share.The stock is currently selling for $45 a share.The initial margin was 70 percent and the maintenance margin is 30 percent.What is your current margin position?

The maximum loss you can incur on a short sale is:

Nelson purchased 1,600 shares of stock for $18.75 a share.The initial margin requirement is 70 percent and the maintenance margin is 40 percent.What is the maximum percent by which the stock price can decline before he receives a margin call?

Which one of the following best describes the term "initial margin"?

Which one of the following statements is correct?

Rudolfo purchased 900 shares of stock for $62.20 a share and sold them ten months later for $64.60 a share.The initial margin requirement on this stock is 75 percent and the maintenance margin is 40 percent.Ignoring dividends and costs,what is his holding period return?