Q1 & Q2

7. Broker-Customer Relations (LO2, You invest heavily, but to your considerable dismay, the stock plummets in value. Whal recourse do you have against your broker? 8. Long Profits (LO4, CFA5) An important difference between a long position in stock and a short position concerns the potential gains and losses. Suppose a stock sells for $18 per share and you buy 500 shares. What are your potential gains and losses? 9. Liquidity (L04, CFA) The liquidity of an asset directly affects the risk of buying or selling that asset during adverse market conditions. Describe the liquidity risk you face with a short stock position during a market rally and a long stock position during a market decline. 10. Taxes (L04, CF49) How will personal tax rates impact the choice of a traditional versus a Roth IRA? Questions and Problems 1. Calculating Margin (LO3, CFA4) Carson Corporation stock sells for $17 per share, and you've decided to purchase as many shares as you possibly can. You have $31.000 available to invest. What is the maximum number of shares you can buy if the initial margin is 60 percent? 2. Margin (LO3, CFA4) You purchase 275 shares of 2nd Chance Co. stock on margin at a price of $53. Your broker requires you to deposit $8,000. What is your margin loan amount? What is the initial margin requirement? 3. Margin Return (LO3, CFA4) In Problem 2, suppose you sell the stock at a price of $62. What is your return? What would your return have been had you purchased the stock without margin? What if the stock price is $46 when you sell the stock? 4. Margin (LO3, CFA4) Repeat Problems 2 and 3 assuming the initial margin requirement is 70 percent. Does this suggest a relationship between the initial margin and returns? 5. Margin Purchases (LO3, CFA4) You have $22.000 and decide to invest on margin. If the initial margin requirement is 55 percent, what is the maximum dollar purchase you can make? 6. Margin Calls (LO3, CFA4) You buy 500 shares of stock at a price of $38 and an initial margin of 50 percent. If the maintenance margin is 30 percent, at what price will you receive a Bergiscs 2 Asi 203, CFAS) You decide to buy 1,200 shares of stock at a price of $34 and an 5 percent. What is the maximum percentage decline in the stock before you Con call it the maintenance margin is 35 percent? Mergisi Stortivi (1.04, CFA5) The stock of Flop Industries is trading at 513 Youseek price will decline, so you short 1,000 shares at an initial margin of 60 percent. I le maintenance margin is 30 percent, at what share price will you receive a margin call? 9. Margin Calls on Short Sales (L04, CFA5) You short sold 1.000 shares of stock at a price of $36 and an initial margin of 55 percent. If the maintenance margin is 35 percent, at what share price will you receive a margin call? What is your account equity at this stock price? 10. Taxes and Returns (LOI, CF49) You purchased a stock at the end of the prior year at a price of $73. At the end of this year, the stock pays a dividend of $1.20 and you sell the stock for $78. What is your return for the year? Now suppose that dividends are taxed at 15 and long-term capital gains (over 11 months) are taxed at 30 percent. What is your after percent return for the year? 11. Calculatine Marina