Criminals have discovered yet another way to steal money. They are combining phishing attacks, Trojan horses, and keyloggers to steal identities for use in investment fraud. The scheme works like this. Hackers first gain the personal information of legitimate investors, including names, account numbers, passwords, and PINs. These criminals then hack into the accounts of unsuspecting investors, selling off their holdings in various companies to purchase shares in penny stocks. As they buy the penny stocks, the share price increases. (A penny stock is a low-priced, speculative stock of a small company.) After a short time, the hackers sell the penny stocks for a profit and transfer the money to offshore accounts.

Aleksey Karmardin, for example, used this scheme 14 times to defraud investors of more than $80,000. He and his accomplices allegedly hacked into four legitimate online trading accounts, sold their holdings, and purchased shares in a penny stock. The stocks price went from 26 cents to 80 cents in less than one day. The hackers promptly sold the shares and moved the profits to an offshore account.

The fraud affects not only investors but also companies whose stocks are pumped and then dumped. One firm (Firm X) had its stock price go from 88 cents to $1.28 in one day. The following day, the stock fell to 13 cents, where it remained. TD Ameritrade, an online broker, restricted online trade on the companys stock. The companys owner had planned to make a large acquisition, but given the declining stock price canceled the purchase.

Given your calculations in the previous question, state the decision you would make (i.e., ignore, monitor, or restrict trade) if the stock price for Firm A changed to each of the five values presented below.

i) $0.33

Ignore

Monitor

Restrict

ii) $1.03

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Ignore

Monitor

Restrict

iii) $0.01

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Ignore

Monitor

Restrict

iv) $2.00

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Ignore

Monitor

Restrict

v) $2.15

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Ignore

Monitor

Restrict

You examine the price fluctuations for Firm B and find that the trades have a distribution with a mean of $1.11 and a standard deviation of 0.36. Calculate the z-score you would use to determine the probability that the stock price for Firm B will fall below a penny (i.e., $0.01).

Complete the blanks below with the values you used in this calculation.

z =	- _______________________________	=

NOTE: Please round your final answer to 2 decimal places.

True/False: It is less likely that the stock price for Firm A will fall below a penny than the stock price for Firm B.

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