SOUTHEAST UNIVERSITY

Southeast Business School

Mid-Term Assignment
Semester: Spring: 2021
Course Code: Fin 6161/661; Course Title: Investment Theory
Section: A

Name: Tousif Rayhan Pahlowan ID: 2019210004032

Part-A

Question1
a. Define short sell assumption with major criticism and how the short interest ratio indicates
about the upcoming market trend in light of DSE last 120 days trading pattern?

Answer:
Short selling is an investment or trading strategy that speculates on the decline in a stock or
other security's price. It is an advanced strategy that should only be undertaken by experienced
traders and investors.
 Short selling occurs when an investor borrows a security and sells it on the open market,
planning to buy it back later for less money.
 Short sellers bet on, and profit from, a drop in a security's price. This can be contrasted
with long investors who want the price to go up.
 Short selling has a high risk/reward ratio: It can offer big profits, but losses can mount
quickly and infinitely due to margin calls.

The short Interest ratio is a simple formula that divides the number of shares short in a stock by
the stock's average daily trading volume. Simply put, the ratio can help an investor find out
very quickly if a stock is heavily shorted or not shorted versus its average daily trading volume.
The term is also used interchangeably with days to cover. The ratio tells an investor if the
number of shares short is high or low versus the stock's average trading volume. The ratio can
rise or fall based on the number of shares short. However, it can also increase or decrease as
volume levels change

b. Consider DSE as a case; justify investors’ preference of market order over limit order in the
stock market?

A limit order is an order to buy or sell a stock at a specific price or better.  A buy limit order
can only be executed at the limit price or lower, and a sell limit order can only be executed at
the limit price or higher.  A limit order is not guaranteed to execute.  A limit order can only be
filled if the stock’s market price reaches the limit price.  While limit orders do not guarantee
execution, they help ensure that an investor does not pay more than a pre-determined price for
a stock. It is more or less universal that the primary market follows the secondary market. But
the investors’ confidence in the primary market in Bangladesh is leading the confidence in the
secondary market, nullified all the bookish theories.

Question2
A. Explain activities and role of a discount broker in DSE and show investors’ behavior toward
risk preference in the context of Bangladeshi investors in DSE.
The full-service broker gives advisory, trading, and research facility for stock, currency, and
commodity. The online discount broker provides the trading facilities to the clients. The
Bangladeshi investor's behavior to invest their money depends upon risk and gender. Men's
more investing than females and taking higher risks than females

B. Assume that the dividend yield component for common stocks was 5.50 percent for the
period of 2010 to 2020 in the Dhaka Stock Exchange. The investor was invested 155,000 tk.
at the beginning of 2010 and the wealth value stands 325,000 tk. at the end of 2020.
Calculate return for price change component and geometric mean for common stocks.

Question - 4
 Part-B

1 no Answer
Particulars Calculation Total
Share Price 92.3

Lot 1580

Share in a lot 10
Total share purchased 92.3*1580*10 = 1458340
Loan value if margin required 55% 45/100*1458340= 656253
Interest on Loan 11.5/100*656253= 75469.095

Brokerage cost 20.2/100*1580*10= 3191.6

Dividend Received 275/100*1580*10*10= 434500

Transaction Cost 20.2*1580= 31916

Ending Value 155.9*1580*10*(1+8/100) 2660277.6

1458340+75469.095+434500-31916-
1.Gain -723884.505
2660277.6=
Maintains Margin 58/100*2660277.6= 1542961.008
Cash Invested 55/100*1458340= 802087
2.Margin call as Maintance margin > Cash Invested
Actual margin 185*1580*10*1.08= 3156840
3.Investor Need to deposit amount 3156840-55/100*1458340= 2354753

B. Steps included in the ADR process:

1.  Shares are transferred by the company to the national
Custodian Bank.
2.     Request is made by DCB to AD bank for the issuance of shares in the mode of ADR's
3.    ADB start issuing converted in US dollars.
4.     ADM issues the ADR to the investors.

Advantages:
Investment shall be possible in foreign currency.