EXERCISE

1. Suppose that you sell short 100 shares of IBX, now selling at $70 per share

a. What is your maximum possible loss?

b. What happens to the maximum loss if you simultaneously place a stop-buy order at $78?

2. Dee Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $40 per
share. She borrows $4,000 from her broker to help pay for the purchase. The interest rate on the
loan is 8%.

a. What is the margin in Dee’s account when she first purchases the stock?

b. If the price falls to $30 per share by the end of the year, what is the remaining margin in her
account? If the maintenance margin requirement is 30%, will she receive a margin call?

c. What is the rate of return on her investment?

3. Old Economy Traders opened an account to short sell 1,000 shares of Internet Dreams from the
previous problem. The initial margin requirement was 50%. (The margin account pay no
interest). A year later, the price of Internet Dreams has risen from $40 to $50, and the stock has
paid a dividend of $2 per share.

a. What is the remaining margin in the account?

b. If the maintenance margin requirement is 30%, will Old Economy receive a margin call?

c. What is the rate of return on her investment?

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 percentage increase in the net worth of your brokerage account if the price of Intel
immediately changes to (i) $44, (ii) $40, (iii) $36? What is the relationship between your
percentage gain or loss and the percentage change in the price of Intel?
b. If the maintenance margin is 25%, how low can Intel’s price fall before you get a margin
call?
c. How would your answer to (b) change if you had financed the initial purchase with only
$10,000 of your own money? What is the rate of return on your margined position (assuming
again that you invest $15,000 of your own money) if Intel is selling after 1 year at (i) $44, (ii)
$40, (iii) $36)? What is the relationship between your percentage return and the percentage
change in the price of Intel? Assume that Intel pays no dividends.
d. Continue to assume that a year has passed. How low can Intel’s price fall before you get a
margin call?
5. You have borrowed $20,000 on margin to buy shares in Disney, which is now selling at $40 per
share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%.
Two days later, the stock price falls to $35 per share.
a. Will you receive a margin call?
b. How low can the price of Disney shares fall before you receive a margin call?
6. Consider the three stocks in the following table. Pt represents price at time t, and Qt represents
shares outstanding at time t. Stock C splits two for one in the last period.

P0 Q0 P1 Q1 P2 Q2

A 90 100 95 100 95 100

B 50 200 45 200 45 200
C 100 200 110 200 55 400

a. Calculate the rate of return on a price – weighted index of the three stocks for the first period
(t=0, t=1)
b. What must happen to the divisor for the price – weighted index in year 2?
c. Calculate the rate of return for the second period (t = 1 to t =2)
d. Calculate the first-period rates of return on the following indexes of the three stocks:
i. A market-value-weighted index
 ii. An equally weighted index
7. FBN, Inc.., has just sold 100,000 shares in an initial public offering. The underwriter’s explicit
fees were $70,000. The offering price for the shares was $50, but immediately upon issue the share
price jumped to $53.
a. What is your best guess as to the total cost to FBN of the equity issue?
b. Is the entire cost of the underwriting a source of profit to the underwriters?
8. You are looking to investment securities by involving with the purchase of shares listed on the
market. You go to the securities company and open a trading account and deposit $7,000. You
plan to buy shares VNM.
a. On 12/12/2010, the stock price of VNM is $8.5per share, if you want to buy 1000 shares
VNM, what do you do?
b. Suppose that ten days later the share price of VNM decrease to $6 per share. Will you receive
a margin call? What happen if you don’t meet the margin call?
Assuming that:
- Maintenence margin is 80%
- Brokerage fees are 0.3% of transaction value
- Interest rate is 0.1% / day.
9. Assume that the last execution price before the call market period of that day was 24.000 VND,
the trading system selected period of 14:30 – 14:45 as the closing session, and at that time, there
were orders of stock XYZ as below. Determine the closed price of XYZ company stock?

Buying Order Price Selling order

600 (A) 24000 700 (F)

1700 (B) 24300 1500 (G)

2200 (C) 24900 4000 (H)

3000 (D) 25000 2400 (I)

2300 (E) ATC 1200 (K)
a. Determine the trading result?
b. Calculate the brokerage fee of investor K and investor E. The brokerage fee rate is 0,35%.
10. Assume that during the morning trading section, the trading system receive orders of stock ABC
as below. Based on continuous orders matching, determine the results of this stock.

Time Investor Buying quantitative Price Selling quantitative Price

 9h16 A 3000 35.5

9h17 B 1000 35

9h18 C 2500 35.4

9h19 D 3000 35.6

9h20 E 3200 MP

11. Joint- stock company A announces they will issue 18000 new shares by multi-price share
auction. Starting price is 30000/share.
All information about price and quantity of each investor is as follow
Investors Asking price (1000 Quantity
VND)
A 30 7000
B 30.1 6000
C 30.5 3600
D 31 3000
E 31.5 2000
F 31.8 1150

a. Determine investors who success in this share auction and the price and quantity they
could buy
b. Determine the average price
12. An Dutch Bond Auction for raising 500 Billion Dong for Forever A Loan Corporation is shown
in the following table:

Name of Investors Auction volume

Interest Rate (%)
(Bidders) ( Billion Dong)

A 0 100

B 7.35 250

C 7.4 150

D 7.5 70

E 7.55 300
 F 7.85 80

a. Determine auction results (realized interest rates and volume for that auction and each bidder)
b. Does the 0% rate affect the result of the auction, try to explain why the investor bid 0%
13. On Oct 16, 20X7, no-right trading day (the day that stock purchasers will has no rights related to
stocks bought on) of Cash-Dividend Payment with 20% paying rate, continuous trading data of XYZ
shares (HNX) is shown in the following table:
Buying Selling
Price Price
Number (1000VND Number of (1000VND
Time of shares per share) shares per share)
9h35 (A)1200 36.5 - -
9h40 - - (B) 4000 36.6
9h41 (D) 500 36.4
9h42 (C) 6300 MP
9h43 ( E) 500 36.8
9h44 (F) 6000 36.5
a) Determine the matching prices and trading volume for each time
b) Providing that an investor’s trading account on Oct 15, 20X7 is detailed as following,
determine cash dividends that investor would receive.
Name of share Average purchasing price Number of shares
ACB 16.1 3000
XYZ 37.3 9000
14. An Dutch stock auction for issuing 300.000 shares for an corporation is shown in the following
table:
Name of Investors Price (1000 VND per share) Auction volume (thousands of shares)
(Bidders)
A 20 80
B 19.8 100
C 19.5 50
D 19.1 120
E 19 110
F 18.5 60
Determine auction results (realized price and volume for that auction and each bidder)
15. A call auction database of XYZ shares is as following:
 Buying order Price Selling orders
Investors Number of shares Number of shares Investors
A 3500 ATO
B 2700 25.6 5000 G
C 1300 25.8 2800 H
D 4600 26 200 I
E 4000 26.2 0
F 800 26.5 1200 K

Determine trading results (matching price and trading volume for that call auction and for each
investor)
16. Mekong Fisheries Joint Stock Company (AAM, listed on HOSE) announces its dividend
payment policy for the year 2012 as following:
Share Code Face value Record Date Dividend payment ratio
AAM VND 10000 June 7, 2013 (Friday) In cash: 30%
In shares: 20%

Determine AAM’s market price on ex-date. Suppose that AAM’s closing-price on June 4, 2013 is
VND 44700, and the payment process of Vietnam’s stock market is T+3
17. ThangLong Invest Group (TIG, listed on HNX) discloses information related to its share
dividend payment policy as following:
- Ex-date: August 01, 2017 (Tuesday)
- Record-date: August 02, 2017 (Wednesday)
- Content: Paying dividend in shares for outstanding investors
- Dividend payment ratio: 20:1 (An investor with 20 outstanding shares receives 01 new
share)
- Rounding rule: The number of new shares that investors can receive under
TIG’s share dividend payment policy are rounded down to units before the decimal sign (for
example: if the investor A, based on TIG’s policy, can receive 111.1 shares, after rounding,
he/she receive 111 shares only)
Determine TIG’s market price on the ex-date, given TIG’s closing prices on following days:

Share code Jul. 31 Jul. 28 Jul. 27 Jul. 26 Jul. 25

TIG VND 4400 VND 4600 VND 4600 VND 4600 VND 4500
The payment process of Vietnam’s stock market is T+2
18. Van Phat Hung Corporation (VPH, listed on HOSE) releases information on their coming
issuance of share purchase rights to outstanding investors. Summary of the company’s announcement
is as below:
- Type of shares: Common shares
- Face Value: VND 10000
- Ex-date: Oct 31, 2017 (Tuesday)
- Record-date: Nov 01, 2017 (Wednesday)
- Issuing price: VND 10000
- Issuing ratio: 5:1 (01 outstanding share is equivalent to 01 share purchase right, and
05 share purchase right could be used to buy 01 new share under the coming issue)
- Rounding rule: the number of new shares that investors could buy based on their outstanding
shares and rights are rounded down to units before the decimal sign (for example: if the
investor A has share purchase rights to buy up to 24.2 share, after rounding, he/she could buy
24 shares only)
- Registration and payment for executing rights: Nov 07, 2017 – Dec 04, 2017
a/ Determine VPH’s market price on the ex-date, and the value of share purchase right.
Given that:
Payment process of Vietnam’s stock market is T+2
Closing price of VPH shares on Oct 30, 2017 is VND 12900
b/ Suppose that an investor A is holding 5000 VPH shares on Oct 26, 2017.
Determine (1)-the number of new shares that A could buy, (2) value of all the rights A has, (3) -the
amount of money that A has to pay VPH to execute all rights that A owns, for each of following
cases (from b.1 to b.9):
b.1. A continues to hold 5000 VPH shares until Dec 31, 2017
b.2. A sells 5000 VPH shares on Nov 08, 2017 (Wed.)
b.3. A sells 5000 VPH shares on Oct 27, 2017 (Friday)
b.4. A sells 5000 VPH shares on Oct 31, 2017 (Tue., ex-date)
b.5. A sells 5000 VPH shares on Nov 01, 2017 (Wed., Record date)
b.6. A buys 2000 VPH shares on Oct 30, 2017 (Mon.)
b.7. A buys 3000 VPH shares on Oct 31, 2017 (Tue, ex-date)
b.8. A sells 3000 VPH shares on Oct 30, 2017 (Mon.)
b.9. A sells 5000 VPH shares on Nov 08, 2017 (Wed.)
c/ Determine A’s investment profit by Dec 29, 2017 for each of cases listed above (b.1. – b.9.),
Given that:
VPH shares’ closing price on Dec 29, 2017 is VND 11250;
A sells all his VPH shares on Dec 29, 2017 with closing price;
A did not place any other buy/sell orders between Oct 26 and Dec 28, except for orders specified
in above cases (b.1 to b.9)