Question

35) The margin requirement on a stock purchase is 25%. You fully use the margin allowed to purchase 100 shares of MSFT at $25. If the price drops to $22, what is your percentage loss?

A) 9%

B) 15%

C) 48%

D) 57%

E) 60%

36) You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you want to limit your loss to $2,500, you should place a stop-buy order at ____.

A) $37

B) $62.50

C) $56.25

D) $59.75

E) $65.25

37) An investor buys $8,000 worth of a stock priced at $40 per share using 50% initial margin. The broker charges 6% on the margin loan and requires a 30% maintenance margin. In 1 year the investor has interest payable and gets a margin call. At the time of the margin call the stock's price must have been ____.

A) $20

B) $29.77

C) $30.29

D) $32.45

E) $35.50

38) Consider a no-load mutual fund with $200 million in assets and 10 million shares at the start of the year and with $250 million in assets and 11 million shares at the end of the year. During the year investors have received income distributions of $2 per share and capital gain distributions of $.25 per share. Assuming that the fund carries no debt, and that the total expense ratio is 1%, what is the rate of return on the fund?

A) 11.19%

B) 23.75%

C) 24.64%

D) 25.20%

E) The answer cannot be determined from the information given.

39) Suppose you pay $9,700 for a $10,000 par Treasury bill maturing in 3 months. What is the holding-period return for this investment?

A) 3.01%

B) 3.09%

C) 12.42%

D) 16.71%

E) 17.50%

Answer 1

35) Margin required is 25%. Stock is trading at 25 and we buy 100 shares. So total cost of 100 shares is $2500. Now since margin required is 25%, we put in $2500*25% = $625 into the trade.

Now if the stock price drops to $22, total loss is $25-$22)*100 = $300

So we loose $300 from the $625 total that we had put in.

%loss = loss / total capital * 100 = 300/625*100 = 48%

Option C is the correct answer.

36) Short selling 200 shares at $50 means we have sold the shares at $50 in the hope that we will buy the shares when the prices come down. But if the price starts to go up we incur loss as we will have to buy at higher price. For every $1 increase in price, we loose $200 (as there are 200 shares that we have short sold)

If we want to limit the loss to $2500, it means that we can wait untill price increase by 2500/200 = 12.5

SO we will have to place our stop loss buy order at $50 + $12.5 = $62.5

Hence B is the correct option.