2. A trader opens a brokerage account and purchases 100 shares of Internet Dreams at $58 per share. She borrows $2,200 from her broker to help pay for the purchase. The interest rate on the loan is 12%.

a.) What is the margin in the traders account when she first purchases the stock?

Hint: (initial purchase price minus net borrowing = margin amount)

b.) If the share price falls to $48 per share by the end of the year, what is the remaining margin in her account?

Hint: (Remaining margin = Ending equity in account/Current value of the stock)

Hint: (Ending equity in account = current value of stock * (Principal (1 + Interest rate)))

c.) What is the rate of return?

Hint: Rate of return = ending equity in account initial equity in account / initial equity in account)

3. On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock at $26.00 per share. On March 1, a dividend of $3.50 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $17.00 per share. You paid 15 cents per share in commissions for each transaction.

a.) What is the proceeds from the short sale (net of commission)?

b.) How much was the dividend payment?

c.) What is the total cost, including commission, if you have to cover the short sale by buying the stock at a price of $17.00 per share? You have to pay commissions for both the sale and the purchase

d.) What is the net gain on the transaction? Remember: you have to pay out the dividend.

Hint:

4. NewCorp, Inc. just sold 700,000 shares in a public offering for an offering price of $24 per share. The underwriting fee was 7.50% of the issues total value based on the offering price. As soon as the shares were issued, the price jumped to $36 per share.

What are the explicit, implicit, and total costs of the issue?