Question
Portfolio Management (a) Suppose you have $6,500 and plan to purchase a 10-year certificate of deposit (CD) that pays 6.5% interest, compounded annually. How much
Portfolio Management
(a) Suppose you have $6,500 and plan to purchase a 10-year certificate of deposit (CD) that pays 6.5% interest, compounded annually. How much will you have when the CD matures? (5 marks)
(b) ODC Corp. stock is currently trading at $35 per share. Suppose the brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin financing is 6.25% per year. The maintenance margin is 30%. Assuming that you paid the full cost of the purchase now, and ODC Corp. paid dividend of $0.75 per share. Calculate the rate of return if you sell ODC Corp. stock at $68 per share one year later. (5 marks)
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