Royal University Of Phnom Penh

Name: Theng KimAy

Midterm Exam: Investment Management
Time Allow: 90 mn
Class: T204

Year: M1, year 3

I. Multiple Choice Questions

1. Assume you purchased 200 shares of GE common stock on margin at $70 per share from
your broker. If the initial margin is 55%, how much did you borrow from the broker?
A. $6,000
B. $4,000
C. $7,700
D. $7,000
E. $6,300
2. You sold short 200 shares of common stock at $60 per share. The initial margin is 60%.
Your initial investment was
A. $4,800.
B. $12,000.
C. $5,600.
D. $7,200.
E. none of the above.
3. You purchased 100 shares of IBM common stock on margin at $70 per share. Assume
the initial margin is 50% and the maintenance margin is 30%. Below what stock price
level would you get a margin call? Assume the stock pays no dividend; ignore interest on
margin.
A. $21
B. $50
B. $49
C. $80
D. none of the above
4. You purchased 100 shares of common stock on margin at $45 per share. Assume the
initial margin is 50% and the stock pays no dividend. What would the maintenance
margin be if a margin call is made at a stock price of $30? Ignore interest on margin.
A. 0.33
B. 0.55
C. 0.43
D. 0.23
E. 0.25

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5. You purchased 300 shares of common stock on margin for $60 per share. The initial
margin is 60% and the stock pays no dividend. What would your rate of return be if you
sell the stock at $45 per share? Ignore interest on margin.
A. 25%
B. -33%
C. 44%
C. -42%
D. E. -54%
6. Assume you sell short 100 shares of common stock at $45 per share, with initial margin
at 50%. What would be your rate of return if you repurchase the stock at $40/share? The
stock paid no dividends during the period, and you did not remove any money from the
account before making the offsetting transaction.

A. 20%
B. 25%
C. 22%
D. 77%
E. none of the above
7. You purchased 300 shares of common stock on margin for $60 per share. The initial
margin is 60% and the stock pays dividend $2/Share. What would your rate of return be
if you sell the stock at $65 per share? Ignore interest on margin.
A.25%
A. 8.3%
B. 4%
C. -12% E. -54%
8. Assume you sell short 100 shares of common stock at $45 per share, with initial margin
at 50%. What would be your rate of return if you repurchase the stock at $40/share? The
stock paid dividends during the period $5/Share.
A. 20%
B. 15%
C. 0.0% D. -7%
9. You purchased 300 shares of common stock on margin for $60 per share. The initial
margin is 60% and the stock pay no dividend . What would your rate of return be if you
sell the stock at $65 per share? Interest on loan 2%.
A. 12.55%
B. 8.3%
C. 4%
D. -10%
10. Assume you sell short 100 shares of common stock at $50 per share, with initial margin
at 50%. What would be your rate of return if you repurchase the stock at $40/share? The
stock paid dividends during the period $5/Share.
A. 20%
B. 15%
C. 0.0% D. -7%

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11. You sold short 300 shares of common stock at $55 per share. The initial margin is 60%.
At what stock price would you receive a margin call if the maintenance margin is 35%?
A. $51
B. $65
C. $35
D. $40
E. none of the above
12. Assume you sold short 100 shares of common stock at $50 per share. The initial margin
is 60%. What would be the maintenance margin if a margin call is made at a stock price
of $60?
A. 40%
B. 33%
C. 35%
D. 25%
E. none of the above

13. You want to purchase IBM stock at $60 from your broker using as little of your own
money as possible. If initial margin is 50% and you have $3000 to invest, how many
shares can you buy?
A. 100 shares
B. 200 shares
C. 50 shares
D. 500 shares
E. 25 shares

II. Question and problems

1. Define the meanings of Investment? And Discuss Why people invest.

Investment is the purchase of goods that are not consumed today but are used in
the future to create wealth. People invest for larger future consumption.

2. What kinds of securities we can invest on the financial market. Discuss the differences of
them

The kind of securities that we can invest in finance market are:

- Bond : When you buy a bond, you're lending money to the organization that issues it. So
I will become the creditors or Bond holder. The company promises to pay interest
payments to you for the length of the loan. When the bond reaches the date of maturity,
the company repays the loan back to you. Stock is the equity securities.
-Stock : when u buy the stock so it's mean that u become the shareholder or stockholders.
So u the company will give u dividend of the profit.

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3. Discuss the differences between Buying on Margin and Short Sale
Buying margin- it allows you to buy and sell greater volumes in equity than would be
possible on your own. If you have a margin trading account, your broker will lend you the
remainder of the money while the stock you bought makes for the safety on this loan.
Short Sale- you’re selling the stock that you don’t have.  Short seller always disposes off
the stock and securities at the current market price and buys it back later when the market
price will fall. If a seller won’t have stock at the time, then he will borrow that stocks from
someone who owns the stocks. Short seller buys back the stock at the lower price and then
return it to close the loan. 
4. Suppose that Intel currently is selling at $40 per share. You buy 500 shares, using $15,000
of your own money and borrowing the remainder of the purchase price from your broker.
The rate on the margin loan is 8%.

a. What is the percentage increase in the net worth of your brokerage account if the
price of Intel immediately changes to $45

b. If the maintenance margin is 20%, how low can Intel’s price fall before you get a
margin call?

c. What is the rate of return on your margined position (assuming a gain that you
invest $15,000 of your own money) if Intel is selling after one year at $50. Assume
that Intel pays no dividends.

d. d. Continue to assume that a year has passed. How low can Intel’s price fall before
you get margin call?
5. Suppose that you sell short 500 shares of Intel, currently selling for $40 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 Intel stock is selling at $35? Assume that Intel pays no
dividends.

b. If the maintenance margin is 25%, how high can Intel’s price rise before you get a
margin call?

c. Redo parts (a) and (b), now assuming that Intel’s dividend (paid at year end) is $1 per
share.