Kim & Jenny are a married couple in their early 50's. They have two children aged 23 and 25 who are both employed. Kim owns and operates a small business selling curtains and roller blinds and earns RM100,000 per annum while Jenny earns RM70,000 per annum as a Sales Executive in a public listed company. Kim is risk adverse and has invested the bulk of his savings in the money market which have provided him with average returns of 3.5% pa over the past 15 years. Jenny has invested a large part of her savings buying share options allocated to her by the company she works for.  However, she is now concerned that she may have too much of her personal wealth invested in the company. They both intend to retire by sixty but are not certain if the returns from their investments and savings will be sufficient for them to do so. Kim and Jenny realise that they need to diversify their investment portfolio and have approached you to advise them on some of their investment decisions. They have summarized their recently acquired and proposed investments below.

1. Investment in Shares 

Jenny has opened a trading and Central Depository System (CDS) account with Public Bank. Her trading account comes with margin financing of 2.5x. Jenny has placed RM40,000 in her margin account which gives her a trading limit of RM100,000. Jenny intends to invest in Top Glove shares and her broker has provided her with the following information.

Required:

1. Using the information above, determine if the Top Glove shares are fairly valued. Assume that the one year forecast P/E ratio of other glove manufactures is around 15 and that the dividend per share of Top Glove will remain constant for the next year.                
2. Suppose jenny expects Top Gloves shares to fall and submits a sell limit order to her broker for RM6.23. Explain how this will affect the margin of finance available to jenny.   
3. Jenny places a market order to short sell 13,000 Top Glove shares on January 18 2021 at the price indicated the table above.  If one month later on 17 Febuary 2021 the share price is RM6.3, calculate what would Jenny’s % of margin financing be?                         
4. Assuming Jenny earns no interest on the funds in her margin account and Top Glove pays Betty a dividend of RM2,000 on 2 February 2021, what will be Jenny’s rate of return in (c) above?                                                                                                                
5. If the maintenance margin is 30%, at what price will a margin call be made?