Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please answer both parts 1. Ike, an investor, is considering opening a margin account and investing $1,000 in Mikes mutual fund. The terms of the

Please answer both parts

1.

Ike, an investor, is considering opening a margin account and investing $1,000 in Mikes mutual fund. The terms of the account require that he pay back the amount he borrowed on the margin by the end of the year with 10 percent interest. Ike is trying to decide what level of margin he wants. For example, if he chooses an account at the level of 50 percent, the bank will let him borrow and invest an additional $500, or 50 percent of his original $1,000.

Complete the table below by filling in Ikes account value at the end of the year, given varying levels of the margin account and mutual fund performance. Assume that Mikes mutual fund will return 35 percent per year in a stellar market and 5 percent per year in a fair market, and that in a terrible market, it will lose 30 percent.

Instructions: Round your answers to the nearest dollar.

Margin account level Account value in a stellar market Account value in a fair market Account value in a terrible market
No margin $ $ $
60% $ $ $
100% $ $ $
150% $ $ $
200% $ $ $

2.

Consider a stock whose value increases across an 8-year period as shown in the table.

Instructions: Round your answers to two decimal places.

a. Calculate the percentage change in the value of the stock from year to year.

Year Stock Value Percent Change
1 $100.00
2 109.00 %
3 120.00 %
4 132.00 %
5 148.00 %
6 220.00 %
7 330.00 %
8 520.00 %

b. Calculate the percentage change in the value of the stock across the entire 8-year period.

%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing & Assurance Services

Authors: Timothy Louwers, Penelope Bagley, Allen Blay, Jerry Strawser, Jay Thibodeau

8th Edition

978-1260703733, 1260703738

More Books

Students also viewed these Accounting questions

Question

=+ What are the undesirable consequences?

Answered: 1 week ago

Question

5. Explain how ERISA protects employees pension rights.

Answered: 1 week ago