Assignment 1

1. Tony is investing $10,000 at 5%, compounded annually, for 4

years. How much additional income could he earn if he had
invested this amount at 6%, compounded annually? Please round
the answer to two decimal points.
469.70 is71�)))
7
2. Which of the following orders instructs the broker to sell at or
below a specified price?
Group of answer choices

Stop-loss Order

Limit-sell Order

Limit-buy Order

Market Order
3. You want to purchase XYZ 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?
100

You buy 300 shares of QTY for $30 per share and deposit initial
margin of 50%. The next day stock price drops to $25 per share.
What is your actual percentage margin?
o New Stock value = $7500
o Borrowed = $4500
o Equity = $3000 （initial investment 減虧了的錢）
o Margin% (New Stock Value - Loan) / New stock value
= [Equity/New stock value] =$3000 /$7500 = 40%

4a) You purchase 100 shares of Twitter (TWTR) at $27 per share.
To pay the purchase, you borrow $1,000 from your broker. If
Twitter falls to $25 per share, what is the remaining margin
(percentage) in your account?

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 New Position
o New Stock value = $2500
o Borrowed = $1000
o Equity = $(1700-2x100)//$(2500-1000) =1500 （initial
investment 減虧了的錢）
o Margin% (New Stock Value - Loan) / New stock value
= [Equity in account / Value of stock //Equity/New stock value] =$1500 /
$2500 = 60%
4b) If the maintenance requirement is 30%, will you receive a
margin call when the price falls to $15? Ignore the interest rate
on the loan
o New Stock value = $1500
o Borrowed = $1000
o Equity = $(1700-12x100)//$(1500-1000) = 500 （initial
investment 減虧了的錢）
o Margin% (New Stock Value - Loan) / New stock value
= [Equity in account / Value of stock //Equity/New stock value] =$500 /
$1500 = 33.3%, no

5) You sold short 200 shares of common stock at $60 per share.
The initial margin is 60%. What's your initial investment?
200 shares * $60/share * 0.60 = $12,000 * 0.60 = $7,200

200x60-200x60x0.4=
7200

(200x60-P)/(200x60) = 0.60

P=4800
Stock Value= $60x200=$1200
Borrowed= (200P-0.6x200P)/200P
You purchased 200 shares of General Electric (GE) at $25 per share one
year ago. To pay the purchase, you borrowed $2,000 from your broker. If
now you sell all 200 shares at $24, what is the rate of return (percentage)
on your account? Assume the interest rate on the loan over the borrowing
period is 5%.

6) You purchased 200 shares of General Electric (GE) at $25 per

share one year ago. To pay the purchase, you borrowed $2,000

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 from your broker. If now you sell all 200 shares at $24, what is the
rate of return (percentage) on your account? Assume the interest
rate on the loan over the borrowing period is 5%.

Return when there is no borrowing

= Profit / Investment = ($24x200-$25x200)/2,0005000 = -4 percent

Return with 50 percent borrowing

=(Profit- a broker call money rate x loan)/loan
= (-200-0.05x2,000)/2,000 = -15 percent

7. You are bearish on Apple (AAPL) and decide to sell short 500 shares at
the current market price of $112 per share. How much in cash or
securities must you put into your brokerage account if the broker’s initial

margin requirement is 50%?

Equity=500x$112-borrow

Percentage margin=50%= (500x$112-borrow)/(500x$112)

How high can the price of the stock go before you get a margin call if the

maintenance margin is 40%?

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