You bought 1000 WLCON shares a year ago at P11 per share. Today, WLCONstock trades for P15 per share. You believe that WLCON stock has additional potential upside and does not want to liquidate your position. You place a stop loss order with aprice of P13.

Questions:

a. What happens if the stock price drops to P13?

b. Will you receive a gain or loss in this stock position?

c. How much is the potential gain/loss?

d. What happens if stock price continues to increase?

2 MARGIN ACCOUNT

Paul has a margin account with 40%initial margin requirement. He deposits P50,000. Suppose the stock is selling at P35 per share.

Questions:

a. How many shares can Paulpurchase using the maximum allowable margin?

b. If the maintenance margin requirement is 30%, to what price per share can the stock fall before Paul will receive amargin call?

3 PERCENTAGE RETURN ON MARGIN PURCHASE

Example: Assume the investor buys 100 shares of stock for $10 a share and sells it for $14. Also assume the margin requirement is 60%, the commission rate is 5% of the purchase or sale price, the interest rate is 10% and the stock pays a dividend of $1.00 ashare.

Questions:

What is your rate of return on the stock if it is:.....?