SECTION 4: EXERCISE 1 (ANSWERS)

ENTRY PRICE = $50.00

EXIT PRICE / STOP LOSS = $47.50

WHAT IS OUR RISK PER SHARE?

= $2.50

PORTFOLIO VALUE = $10 000

WHAT IS 1% RISK OF OUR PORTFOLIO?

= $100

HOW MANY SHARES CAN I BUY IF I AM GOING TO RISK $100 AT $2.50 PER SHARE?

= 40 SHARES

YOU THEN SELL THIS SHARE A FEW WEEKS LATER FOR $65.

HOW MUCH PROFIT HAVE YOU MADE?

= $65 - $50 (SELLING PRICE – ENTRY PRICE)

= $15 PROFIT PER SHARE

= $15 X 40 SHARES

= $600
 SECTION 4: EXERCISE 2 (ANSWERS)

ENTRY PRICE = $55.68

EXIT PRICE / STOP LOSS = $51.44

RISK PER SHARE = $4.24

PORTFOLIO VALUE = $10 000

WHAT IS 1% RISK OF OUR PORTFOLIO?

= $100

HOW MANY SHARES CAN I BUY?

= 23.58 SHARES

= 24 SHARES ROUNDED OFF

WE ALWAYS ROUND OFF TO THE NEAREST WHOLE NUMBER.

0.1 – 0.4 = 0

0.5 – 0.9 = 1