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    Dario Kabanga
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    Mercy and Dennis each had K100,000 in savings to invest in LSK Ltd shares trading at K20 per share. Mercy used her full savings to purchase shares, while Dennis took a margin loan with a 55% initial requirement from a broker charging 10% annual interest and 3% commissions. At year end, shares traded at K27 and paid a K0.50 dividend. Students are asked to calculate how many shares each purchased and their percentage returns to determine who made the better investment decision.

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    ASSESSMENT ONE QUESTIONS

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    Mercy and Dennis each had K100,000 in savings to invest in LSK Ltd shares trading at K20 per share. Mercy used her full savings to purchase shares, while Dennis took a margin loan with a 55% initial requirement from a broker charging 10% annual interest and 3% commissions. At year end, shares traded at K27 and paid a K0.50 dividend. Students are asked to calculate how many shares each purchased and their percentage returns to determine who made the better investment decision.

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    © All Rights Reserved
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    68 views1 page

    Assessment One Questions

    Uploaded by

    Dario Kabanga
    Mercy and Dennis each had K100,000 in savings to invest in LSK Ltd shares trading at K20 per share. Mercy used her full savings to purchase shares, while Dennis took a margin loan with a 55% initial requirement from a broker charging 10% annual interest and 3% commissions. At year end, shares traded at K27 and paid a K0.50 dividend. Students are asked to calculate how many shares each purchased and their percentage returns to determine who made the better investment decision.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    ASSESSMENT ONE DEADLINE: 30th SEPTEMBER 2020

    INSTRUCTIONS: SUBMIT SOFT COPY OF YOUR ANSWERS ON MOODLE

    CASE STUDY

    Two of your acquaintances (Mercy and Dennis) approach you seeking investment
    advice. Each of them had K100 000 of savings to invest. Both invested in LSK Ltd
    shares which were trading at K20 per share. Mercy used her entire savings to
    purchase LSK Ltd shares. Dennis felt that LSK Ltd shares would perform well so he
    approached a broker and took up a margin transaction with a 55% initial requirement.
    The broker charged Dennis 10% annual interest, and commissions of 3% of the total
    stock value on both the purchase and sale. The dividend at the end of year was K0.50
    per share and the shares trade at K27 at the end of the year.

    Required:

    A. How many shares did Mercy buy?


    B. How many shares did Dennis buy?
    C. Calculate Mercy’s percentage return on investment.
    D. Calculate Dennis’s percentage return on investment.
    E. Who made a better investment decision?
    (TOTAL: 50 MARKS)

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