I need help with the following questions:

1. After Merrill Lynch analyst upgraded Coca-Cola stock on September 20, 2014, you bought on margin

5,000 shares at the price of $43.91 per share. The initial percentage margin is 60% and the

maintenance margin is 30%. The annual cost of the margin loan is 6%.

(a) Determine your initial margin requirement.

(b) To what price must Coca-Cola fall for you to receive a margin call on September 20, 2014?

(c) Two months later, you sold your Coca-Cola shares at the price of $44.39 per share. What was the

return on your investment?

2. On January 3, 2014, you short sold 5,000 shares of Ebay, a pioneer in internet person-to-person

trading, at the price of $114.11 per share. The initial percentage margin is 65% and the maintenance

margin is 30%. Short sale proceeds yield 2% and the initial margin yields 3% (both rates are annual

rates).

(a) Determine your short sale proceeds and the initial margin requirement.

(b) To what price must Ebay climb for you to receive a margin call on January 3, 2014?

(c) A month later, Ebay fell to $77.22. What was the actual margin in your account?

(d) Suppose that you closed your account on February 3, 2014. What was the return on your

investment?

3.

At the beginning of 2014, you invested $1,000 in the Fidelity Low Price Stock Fund. Three months

later (at the beginning of April), your investment was valued at $900. In the mid of 2014, your

investment in the Fund was valued at $1,100.

(a) What was your annual return?

(b) At the beginning of April, if you added $100 to the Fund, leaving, therefore, $1000 invested in

the Fund. What was your total investment value in the mid of 2014?

(c) What was your dollar weighted annual return in (b)?

(d) What was your time weighted annual return in (b)?

4. GROWTH, Inc.s next year earning is expected to be $6 per share. The company pays out 2/3 of its

earning as dividend. Both dividends and earnings are expected to grow by 10% a year for the first 5

years, and grow by 4% a year indefinitely thereafter. STABLE, Inc. is like GROWTH in all respects

except that its growth will stop after year 5. In year 6 and afterward, it will pay out all earnings as

dividends. The discount rate for both companies is 8%.

(a) What are the values for each company?

(b) What are the P/E ratios for each company?

(c) Now, suppose the stock prices computed in (a) are the actual price. However, if you have assumed

that both companies earnings will grow by 4% a year (starting from year 1) indefinitely in computing

the fair values, which stock should you buy?