Question
Question 1 Amy is optimistic about the business prospect of the listed company Small-rice but she is not sure the best timing for purchasing its
Question 1
Amy is optimistic about the business prospect of the listed company Small-rice but she is not sure the best timing for purchasing its shares for long term investment. After seeking advice from Jacky, a financial expert, she decided to transfer part of her monthly salary to the designated investment account on the first day of each month for buying 100 shares of Small-rice Company at the market price. Till October 2020, the record showed that she purchased Small-rice shares for a total of 5 times at per share prices: $208, $190, $210, 260, and $278, respectively. Commission plus brokerage fee for each transaction was 1% of the total buy or sell amount. During the period she owned the share, she received $950 in dividend from Small-rice.
On 30 October 2020, the market price of Small-rice jumped up sharply and was trading at $305. Amy heard that Small-rice Company acquired an overvalued commercial building and deemed to be detrimental to shareholders' interest. She worried the share price would go down very soon. Therefore, she immediately placed a trading order through online banking and indicated that all her shares on hand would be sold if the share price went up to $313. After two hours, she received a message from the bank confirming that the transaction was successfully executed. To show her gratitude to Jacky, she took out $600 from the profit earned and bought him a dinner at a 5-star hotel.
Required:
- Name the investment strategy used by Amy. State TWO advantages of this investment strategy. (3 marks)
- Based on the information provided, calculate the average purchased price per share and the total investment return earned by Amy from investing in Small-rice company. Show all your workings. (6 marks)
- Name and describe the order that Amy placed for selling the share. (4 marks)
- Name the investment risk that Amy worried about a decrease in the share price of Small- rice ery soon. Brieflyexplain. (3 marks)
- Draw an investment pyramid and indicate the names and associated risks of the four levels.
(4 marks)
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