Using your same brokerage account as in Problem 5‐1 (same margin rate and transaction costs), assume that you buy IBM at $156 a share, on 60 percent margin. During the year, IBM pays a dividend of $1.30 per share. One year later, you sell the position at $233. Treat the brokerage cost to sell in calculating the gain or loss and the brokerage cost to buy as part of your investment.

a. Calculate the dollar gain or loss on this position.

b. Calculate the percentage return on your investment.

Problem 5‐1

Consider an investor who purchased a stock at $100 per share. The current market price is $125. At what price would a limit order be placed to assure a profit of $30 per share? What type of stop order would be placed to ensure a profit of at least $20 per share?