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Investment Chapter - Importance of an Investment Policy Statement

Autor:   •  October 31, 2017  •  980 Words (4 Pages)  •  318 Views

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ROI is (6960-8000) / 24000 = -4.33%

Price decreases to $32

Assets

Liabilities and Account Equity

500 shares

$16000

Margin loan

$17040

Account equity

$-1040

Total

$16000

Total

$16000

ROI is (16000-24000) / 24000 = -33%

If simply purchased $8000 without margin, then spend $7968 to buy 166 shares with $48 per share.

If the price increases to $53 one year after, the ROI will be 53*166 – 7968 / 7968 = 10.42%

If the price remains $48, then ROI is 0 since there is no margin.

If the price decreases to $32, ROI should be 32*166-7968 / 7968 = -33.33%

#22

After selling the stock and gaining dividend, margin loan interest rate is 6%+1.25%=7.25%. Since you hold the stock for six months, so after six months, the margin maintenance should be 16600* (1+7.25%/2) = 17201.75. The selling price is $53, with a dividend of $0.25 per share, thus the value of 600 shares after six months should be $53.25*600=31950

Assets

Liabilities and Account Equity

600 shares

$31950

Margin loan

$17201.75

Account equity

$14748.25

Total

$31950

Total

$31950

Total dollar return = 0.25*600 + (14748.25-11000) = 150+3748.25=$3898.25

#25

One year before

Assets

Liabilities and Account Equity

750 shares

$72000

Margin loan

$43200

Account equity

$28800

Total

$72000

Total

$72000

One year late, covering short when the price hits $86.5

Assets

Liabilities and Account Equity

750 shares

$64875

Margin loan

$43200

Account equity

$21675

Total

$64875

Total

$64875

Short: (72000-64875) – (0.75*750*2) = 6000

ROI= (72000-64875-1125-72000)/72000 = -91.67%

#26

The original trade

Assets

Liabilities and Account Equity

600 shares

$43200

Margin loan

$21600

Account equity

$21600

Total

$43200

Total

$43200

Price of $63

Assets

Liabilities and Account Equity

600 shares

$37800

Margin loan

$21600

Account equity

$16200

Total

$37800

Total

$37800

Margin = 21600/ 37800 = 57.14%

Price of $77

Assets

Liabilities and Account Equity

600 shares

$46200

Margin loan

$21600

Account equity

$24600

Total

$46200

Total

$46200

Margin = 21600/ 46200 = 46.75%

Then calculate EAR at the price of $63

N=5, PV=- 43200, FV=37800 , PMT=0, thus I/Y= -2.63%

APR= -2.63% *12 = -31.62% thus EAR=(1-2.63%)12 -1= -27.37%

EAR at the price of $77

N=5,

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