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Investor A makes a cash purchase of 100 shares of AB&C common stock for $55 a share. Investor B also buys 100 shares of AB&C but uses margin. Each holds the stock for one year, during which dividends of $5 a share are distributed. Commissions are 2 percent of the value of a purchase or sale; the margin requirement is 60 percent, and the interest rate is 10 percent annually on borrowed funds.
What is the percentage earned by each investor if he or she sells the stock after one year for (a) $40, (b) $55, (c) $60, and (d) $70?
If the margin requirement had been 40%, what would have been the annual percentage returns?
What conclusion do these percentage returns imply?
Tanner Inc. reports 2,858,000 stock options granted during fiscal 2014 at a weighted-average fair-value of $15.40. The average vesting period for these options is four years. Tanner should record a $44,013,200 expense on its income statement related ..
Tom has the opportunity to purchase investments that will pa $30,000 in 5 years. The purchase price of the investment today is $18,000. Should he make the purchase if he can earn 10% on his investments?
Beth purchased a $50,000 non participating whole life insurance policy. The annual premium was $1,278. The cash value of the policy after 10 years will be $13,740. The future value of $1 deposited at the start of the year for 10 years, assuming 5 per..
Define the various capital budgeting methods such as net present value (NPV), internal rate of return (IRR), and so on, and explain how they differ from one another. Identify which, if any, of the methods discussed might be superior to the others and..
What information might you use, besides the financial statements of an organization, when analyzing its financial health?
Dividend and Capital Gain Yields 1.Paul Dargis has analyzed five stocks and estimated the dividends they will pay next year as well as their prices at the end of the year. His projections are shown below. Compute the dividend yield, capital gains yie..
A cooperative agreement among oligopolists is more likely to be maintained,
Huskers Inc. is considering to build a bowling ball manufacturing facility. Find the NPV and IRR of the project using the information given below: Cost of test marketing already spent: $300,000. Current after-tax market value of the proposed factory ..
Grandpa Russ thinks he needs a fixed income for the next 10 years. He currently has $10,000 in CDs, which are maturing at the end of this month. What is the maximum price you should tell Grandpa to pay for each bond? Compare the risk of the CD with t..
A deposit of $800 is planned for the end of each year into an account paying 8 percent/year compounded annually. The deposits were not made for the tenth and eleventh years. All other deposits were made as planned. What amount will be in the account ..
The Lo Sun Corporation offers a 6.0 percent bond with a current market price of $809.50. The yield to maturity is 8.24 percent. The face value is $1,000. Interest is paid semi-annually. How many years is it until this bond matures?
My company makes and sells golf cart tires at $95.25 each. His fixed operating costs are $570,000 and his variable operating costs are $24. Determine the number of units he needs to rech the operating breakeven point. Now that you have found the % ch..
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