Luanmasa, Ardy Eduard

tugas investment

problem 2.4

Erin McQueen purchased 50 shares of BMW, a German stock traded on the Frankfurt Exchange, for
€64.5 (euros) per share exactly one year ago when the exchange rate was €0.67>US$1. Today the stock is
trading at €71.8 per share, and the exchange rate is €0.75/US$1.

a. Did the € depreciate or appreciate relative to the US$ during the past year? Explain.

b. How much in US$ did Erin pay for her 50 shares of BMW when she purchased them a year ago?

c. For how much in US$ can Erin sell her BMW shares today?

d. Ignoring brokerage fees and taxes, how much profit (or loss) in US$ will Erin realize on her BMW stock
if she sells it today

answer

a. The euro depreciated in the past year because my $1 can now by more euros.

b. Erin paid $4,805.75 (5064.51.49)

c. Erin can sell her stock for $4,774.7 today (5071.81.33)

d. She will lose ($31.05) due to currency exchange rates.

P2.7 Your company’s stock is currently selling at $50 per share. For each of the following

situations (ignoring brokerage commissions), calculate the gain and loss that will be realized

if the transactions are made with 100 shares.

a. A repurchase of borrowed shares at $60 per share.

b. A long position is taken and the stock is sold at $65 per share.

c. A short sell and repurchase of borrowed shares at $35 per share.

d. A long position is taken and the stock is sold at $50 per share.

ANSWER:

a. $1,000 loss. This is because a short sale would have realized $5,000, while the replacement

of the shares would cost $6,000.

b. A profit of $1,500. The long position would initially cost $5,000. When the stock is sold at

$65 per share, a profit of $15 per share ($65 − $50) for a total of $1,500 (100 shares at $15

per share) is realized.

c. $1,500 profit. The short sale brings in $5,000, while the return of the shares to the owner

costs only $3,500

d. A breakeven situation. The long position costs $5,000, and the sale of the stock brings in

$5,000, thereby providing neither a profit nor a loss

Assume that an investor buys 100 shares of stock at $35 per share, putting up a 75% margin.

a. What is the debit balance in this transaction?

b. How much equity funds must the investor provide to make this margin transaction?

c. If the stock rises to $55 per share, what is the investor’s new margin position?

answer

a. Debit balance is transaction amount minus margin: (100 × $35) − 0.75 × (100 × $35) $875.

b. Equity is the margin amount, or 0.75 × (100 × $35) = $2,625.

c. Margin = (Value − Debit balance)/Value = [(100 × $55) − $875] ÷ (100 × $55) = 8.40%.