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: (a) Name the investment strategy used by Amy. State TWO advantages of this investment strategy (3 marks) (b) 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) (c) Name and describe the order that Amy placed for selling the share. (4 marks) (d) Name the investment risk that Amy worried about a decrease in the share price of Small- rice very soon. Briefly explain. (3 marks) (e) Draw an investment pyramid and indicate the names and associated risks of the four levels. (4 marks) 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: (a) Name the investment strategy used by Amy. State TWO advantages of this investment strategy (3 marks) (b) 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) (c) Name and describe the order that Amy placed for selling the share. (4 marks) (d) Name the investment risk that Amy worried about a decrease in the share price of Small- rice very soon. Briefly explain. (3 marks) (e) Draw an investment pyramid and indicate the names and associated risks of the four levels. (4 marks)
