Question

1. Johnny Appleseed purchases 500 shares of Musselman Applesauce stock for $27.50 per share, par value. On the purchase, he pays a flat fee commission of $29.95.

a.) What is his total cost for the stock purchase?

b.) After two years, he decides to sell all of his stock for $32.19 per share. His broker has since changed his commission rate and now charges him a rate of 5% of the selling price of the stock. What is the broker’s commission and what are Johnny’s proceeds from the sale of the stock?

c.). Did the sale result in a net gain to net loss for Johnny? How much of a gain or loss?

Answer 1

a.) What is his total cost for the stock purchase?

Answer a) Total Cost of the stock purchased

= (Number of shares * Price) + Commission Paid

= (500*$27.5) + $29.95

= $ 13,779.95

b.) After two years, he decides to sell all of his stock for $32.19 per share. His broker has since changed his commission rate and now charges him a rate of 5% of the selling price of the stock. What is the broker’s commission and what are Johnny’s proceeds from the sale of the stock?

Answer b) Broker’s Commission on sale of stock

= (Selling Price * 5% ) * Number of shares

= ( $ 32.19 * 5%) * 500

= $ 804.75

Sale Proceeds to Johnny

= (Selling Price * Number of shares) – Commission paid on sale of stock

= ( $ 32.19 * 500 ) – 804.75

= $ 15290.25

c.). Did the sale result in a net gain or net loss for Johnny? How much of a gain or loss?

Answer c) The sale of stock results in net gain to Johnny as the sale proceeds are higher than the total cost of purchase.

Net Gain = Sale proceeds – Total Cost of Purchase

Net Gain = $ 15,290.25 - $ 13,779.95

Net Gain = $ 1,510.30