EF3320 Security Analysis and Portfolio Management Assignment #1(Due the week of Sep 23)
NOTE: Calculations should be shown in detail. Correct answers without explanation will not be given credit. You must work independently on the assignment. The hardcopy has to be submitted on or before the due date. Late submission is not acceptable.
1. Suppose you short sell 100 shares of BP, now selling at $120 per share. a. What is your maximum possible loss? b. What happens to the maximum loss if you simultaneously place a stop-buy order at $128?
2. You purchased 100 shares of BMW on margin at $45 per share. Assume the initial margin is 50% and the stock pays no dividend. What would the maintenance margin be if a margin call is made at a stock price of $30? Ignore interest on margin.
3. You purchase 300 shares of Square Enix at $40 per share. To pay the purchase, you borrow $4,000 from your broker. The interest rate on the loan is 5%. a. If the share price falls to $30 per share by the end of the year, what is the remaining margin in your account? If the maintenance requirement is 30%, will you receive a margin call? b. What is the rate of return on your account?
4. You opened an account to short sell 500 shares of Flipcorp. The initial margin requirement was 50%. A year later, the price of Flipcorp has risen from $30 to $40. Ignore interest on margin. a. If the maintenance margin requirement is 20%, will you receive a margin call? b. What is the rate of return on the investment?
5. You are bearish on Deutsche Telekom and decide to sell short 100 shares at the current market price of $50 per share. a. How much in cash or securities must you put into your brokerage account if the broker’s initial margin requirement is 50% of the value of the short position? b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position?
6. For the following set of questions you will need to use the...