please answer the question in the pdf.its about investment

MGMT 141 Homework 1 October 1, 2013 Chong Huang 1. Suppose there are only two stocks in the market: Stock ABC and Stock EFG. Please predict the price change of the Stock ABC in the following scenarios. (Hint: when analyzing one factor, x all other factors unchanged. Graphs may help. If you needs more conditions, state them clearly.) (a) Goldman Sachs predicts that Company EFG's production will increase by 10%, which is higher than investors' initial predictions. (b) Company ABC invests in an oil-drill project in Alaska. This project is considered much riskier than Company ABC's current projects. (c) US government issues new T-bills. 2. The following is a list of current asked prices of Stock LUCKY: price $15 $16 shares 100 50 $17 $18 $20 100 100 1000 (a) If you want to buy 500 shares, and you want to make sure that there are 500 shares in your account by the end of today. How do you make the order? What will be the nal cost of buying these stocks? (b) Suppose you think the fair price is $10, so you don't want to buy the stock at a price higher than $10.5. How should you make the order? Will your order be surely lled? (c) You want to buy 100 shares. But you don't have time to look at the price all the time. Then you think the worst price you can accept is $25. How should you make the order? If the price does increase to $25, what will be your buying price? 3. Miss Good wants to buy BAD stock, which is selling for $5 per share. She can buy on margin. The initial margin requirement is 50%, and the maintenance margin is 30%. There is 10% interest and service charge (paid in cash when purchasing). (a) Miss Good has $2, 000 in hand. If she decides NOT to buy on margin; that is, she wants to buy using only her own funds. Then what is the total shares she can buy? If the price increases to $6 per share, what's the rate of return? If the price decreases to $4 per share, what's the rate of return? (b) If Miss Good decides to buy on margin, and she want to buy 500 shares. Then how much she needs to deposit to her margin account? 1 (c) Miss Good buys 500 shares, and the funds in her margin account just meets the initial margin requirement. The price decreases to $4. What's the rate of return? Will she receive a margin call? (d) If the price decreases to $2. Will Miss Good receive a margin call? If she does receive a margin call, but she dose nothing (because she is traveling to the Moon). Then how many shares should the broker sell to keep the margin above the maintenance margin? 4. Suppose you decide that the Bear Company stock is selling at too high a price at its current $50 per share price. You are convinced that the price of Bear stock will fall in the next couple of months, so you decide to sell 100 shares of Bear stock short. Ignoring transactions costs, if the Bear Company does not pay dividends and if you do not have to use a margin account, what is your prot or loss if the stocks price goes to (a) $40 and you buy at that price to cover your short? (b) $55 and you buy at that price to cover your short? 2