It is August 31, 2017.You believe that Apple's stock price (Ticker: AAPL) will increase in anticipation of the soon-to-be unveiled iPhone.You have $17,000 to invest in AAPL, and you want to buy as many shares as possible by placing a market buy order.Your broker requires a 50% initial margin and a 30% maintenance margin.The current bid and ask prices are $163.71 and $163.73, respectively.

1.What price per share do you pay and what is the maximum number of shares that you will be able to purchase (it is impossible to purchase half shares)?

2.You expect Apple shares to be worth at least $170 within the next month, and you plan to sell your shares at $170 (if it gets there). You are concerned that, if Apple shares trade at $160 or below, the price will go even lower.After your initial market buy order, what order(s) could you place based your expectation and concern so that you do not have to constantly monitor the market in order to exit your position?

3.Your broker charges you a 12% APR (compounded monthly) on any margin borrowings.What is your return on invested capital if the price goes to $170 after one month and you sell at that price?What is your return on invested capital if the price goes to $160 after one month and you sell at that price?

4.Given the initial margin and maintenance margin requirements described in question 1, what would the highest stock price at which you would receive a margin call?

5.Suppose you believe that there is a 60% chance that you will sell at $170 and a 40% chance that you will sell at $160 exactly one month from today, what is your expected monthly return on Apple stock?What is your expected monthly return on your own invested capital?

6.Ignore any answers to questions above.Suppose that after your purchase, you placed a trailing stop-loss order with trailing price given in parts a, b, and c below along with a limit sell order with a limit price of $170.The closing prices on Apple stock from the day of purchase over the next 16 days are presented in the table on the next page.For simplicity, ignore any intraday movements in Apple's price and assume that the trailing stop is executed only based on the closing price.

a.If the trailing amount on the trailing stop-loss were $1, when would the trailing stop be triggered, and at what price would you have sold?

b.If the trailing amount on the trailing stop-loss order were $2, when would trailing stop be triggered, and at what price would you have sold?

c.If instead of a dollar amount, you place a trailing amount of 1% on the trailing stop-loss, when would the trailing stop be triggered, and at what price would you sell?

Days After Purchase

Closing Price

Day 1

162.48

Day 2

164.85

Day 3

166.60

Day 4

165.95

Day 5

164.86

Day 6

164.50

Day 7

163.71

Day 8

164.78

Day 9

164.98

Day 10

164.27

Day 11

164.86

Day 12

166.47

Day 13

167.91

Day 14

168.35

Day 15

169.32

Day 16

170.55