Question

In: Finance

FINANCE MR. Smith buys 100 shares of XYZ stock with cash. His brokerage firm charges a...

FINANCE

MR. Smith buys 100 shares of XYZ stock with cash. His brokerage firm charges a commission of $10 per transaction. Mr. Jones also purchases 100 shares of XYZ stock. He borrows the amount needed to complete the purchase from a bank. The bank charges interest at the continuous risk-free rate of 4% (annually). Mr. Jones' brokerage firm charges a commission of 1% of each transaction amount. The current price of one share of XYZ stock is 18.94. Calculate the profit for both Mr. Smith and Mr.Jones assuming that they both sell all of their shares after 3 months (assume that Mr.Jones must use the proceeds of the stock sale to repay the bank loan). The price of one share of XYZ stock at the end of 3 months is 23.15.

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Mr. Suphi buys 100 shares of ABC stock on margin. The share price is $50 and...
Mr. Suphi buys 100 shares of ABC stock on margin. The share price is $50 and the initial margin is 50%. What is the maintenance margin on the account if the margin call is triggered at a share price of $35? Ignore the interest on the loan. b) Mr. Suphi buys 200 shares of EFG stock on margin. The share price is $60 and the initial margin is 50%. What is Mr. Suphi’s rate of return on equity if he...
Mr. Smith owns 100% of Parent Company (PC). Mr. Smith has been an entrepreneur all his...
Mr. Smith owns 100% of Parent Company (PC). Mr. Smith has been an entrepreneur all his life and as a result owns four businesses through PC which include Holdco Ltd. (Holdco), a holding company. Mr. Smith plans to sell his businesses one by one over the next few years. He is considering selling Holdco this year. Holdco owns 100% of Swiss Sub Ltd. (SS). Swiss Sub is a food franchise that sells freshly toasted sandwiches made to customers’specifications. Swiss Sub...
Mr. Smith owns 100% of Parent Company (PC). Mr. Smith has been an entrepreneur all his...
Mr. Smith owns 100% of Parent Company (PC). Mr. Smith has been an entrepreneur all his life and as a result owns four businesses through PC which include Holdco Ltd. (Holdco), a holding company. Mr. Smith plans to sell his businesses one by one over the next few years. He is considering selling Holdco this year. Holdco owns 100% of Swiss Sub Ltd. (SS). Swiss Sub is a food franchise that sells freshly toasted sandwiches made to customers’specifications. Swiss Sub...
An investor buys three shares of XYZ at the beginning of 2002 for $100 apiece. After...
An investor buys three shares of XYZ at the beginning of 2002 for $100 apiece. After one year, the share price has increased to $110 and he receives a dividend per share of $4. Right after receiving the dividend, he buys two additional shares at $110. After another year, the share price has dropped to $90, but the investor still receives a dividend per share of $4. Right after receiving the dividend, he sells one share at $90. After another...
A stock trader at a brokerage firm has noticed that price changes in the shares of...
A stock trader at a brokerage firm has noticed that price changes in the shares of Summer House Bakery each trade are dependent upon the previous trade's price change. Her observations can be summarized by the following transition matrix. (We are assuming +1/8, 0, -1/8 are the only possible price changes for this stock). ​ Next Price Change Most Recent Price Change +1/8 0 -1/8 +1/8 .7 .2 .1 0 .3 .4 .3 -1/8 .2 .1 .7 ​A) Provide a...
A stock trader at a brokerage firm has noticed that price changes in the shares of...
A stock trader at a brokerage firm has noticed that price changes in the shares of Summer House Bakery each trade are dependent upon the previous trade's price change. Her observations can be summarized by the following transition matrix. (We are assuming +1/8, 0, -1/8 are the only possible price changes for this stock). ​ Next Price Change Most Recent Price Change +1/8 0 -1/8 +1/8 .7 .2 .1 0 .3 .4 .3 -1/8 .2 .1 .7 ​A) Provide a...
Joe sells his shares in BHP and buys shares in a tech stock company. Are these...
Joe sells his shares in BHP and buys shares in a tech stock company. Are these primary or secondary market transactions? Explain why. In what way is the existence of well-developed secondary markets important to the functioning of the primary markets within the financial system?                                                                                                                                                        (Marks 2 + 2 =4) Distinguish between a coupon security and a discount security. Give an example of each.                                                                                                        (Marks 2) Riley and Bailey are planning to start a new business together. They are expecting annual taxable...
An investor buys 100 shares of a stock, shorts 60 call options on the stock with...
An investor buys 100 shares of a stock, shorts 60 call options on the stock with strike price of $20 and buys 60 put options on the stock with strike price of $10. All options are one-year European options. Draw a diagram illustrating the value of the investor’s portfolio as a function of the stock price after one year.
An investor buys 100 shares of a stock, shorts 50 call options on the stock with...
An investor buys 100 shares of a stock, shorts 50 call options on the stock with strike price of $80 and buys 50 put options on the stock with strike price of $40. All options are one-year European options. Draw a diagram illustrating the value of the investor’s portfolio as a function of the stock price after one year.
What are the charges required to be paid by seller of shares in NYSE? a) Brokerage...
What are the charges required to be paid by seller of shares in NYSE? a) Brokerage commission only b) Clearing fees only c) Stamp duty only d) All of the above
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT