Question

2. The bid price of a Treasury bill is ________.

a. the price at which the dealer in Treasury bills is willing to sell the bill

b. the price at which the dealer in Treasury bills is willing to buy the bill

c. greater than the ask price of the Treasury bill expressed in dollar terms

d. the price at which the investor can buy the Treasury bill

3. Harold shorts Barnes Inc. at $84. A month later the company pays a $3 dividend. At what stock price will Harold make a 10% gain from his position?

a. $72.60​​

b. $75.60​​​​

c. $89.40

d. $92.40

4. An investor puts up $10,000 but borrows an equal amount of money from his broker to double the amount invested to $20,000. The broker charges 4% on the loan. The stock was originally purchased at $25 per share, and in 1 year the investor sells the stock for $27. The investor's rate of return was ____.

a. 6.00%

b. 10.00%

c. 12.00%

d. 4.00%

Answer 1

The bid price of a Treasury Bill is the at which the investor can buy the Treasury Bill.

The bid is the price at which the buyer is willing to purchase a particular security while the ask price is the rate which is being sought for the security by the seller of the security or the holder of the security. The difference between the ask price and the bid price is called as the Bid - Ask Spread. This spread is the profit or loss that the investor earns.

Answer 2: Short Sell Price = $84

Dividend Paid = $ 3

Now since a month later the stock earns a dividend hence Harnold will have to give on the dividend also.

Short Sell price = 84 -3 = $81

In order to gain 10% in this transaction he will be anticipating that the price of the security should fall

Therefore Price = P *110 /100 = 81

P = 81/110*100

= $ 72.60  

Answer 3

The investors rate of return will be calculated as follows =

(Amount Invested *SP / CP - Amt Invested - Amt Put Up * Broker's Charge ) / Amt Put Up

Where Amount Invested = $20000

SP = $27 ; CP = $25 , Broker's Charge = 4% , Amount Put Up = $ 10000

Putting the values

Rate = (20000*27/25 - 20000 -10000 *.04) / 10000

=(21600 - 20000 - 400) / 10000 = 1200 / 10000 = .12 = 12%.........ANS