Ann Hamilton owns 500 shares in the XYZ S&P 500 Index Fund. The basis of her investment in this fund is $4,500, while the fair market value is only $2,000. She wants to sell her shares to "lock in" the $2,500 loss, but she is considering buying 500 shares of the GRC Small-Cap Index ETF the following week because she believes that the value is going to increase significantly over a longer period.\\n\\nAs her planner, what can you accurately tell Ann about this scenario?
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Ann Hamilton owns 500 shares in the XYZ S&P 500 Index Fund. The basis of her investment in this fund is $4,500, while the fair market value is only $2,000. She wants to sell her shares to "lock in" the $2,500 loss, but she is considering buying 500 shares of the GRC Small-Cap Index ETF the following week because she believes that the value is going to increase significantly over a longer period.\\n\\nAs her planner, what can you accurately tell Ann about this scenario?
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- Elizabeth Greene wants to buy 300 shares of Google, which is selling in the market for $533.14 a share. Rather than liquidate all her savings, she decides to borrow through her broker at 5 percent a year. Assume that the margin requirement on common stock is 50 percent. If the stock rises to $630 a share over the next year, calculate the dollar profit and percentage return that Elizabeth would earn if she makes the investment with 50 percent margin. Contrast these figures to what she'd make if she uses no margin. Assume there is no opportunity cost for Elizabeth's savings. Calculate the dollar net profit. Round the answers to the nearest dollar. Without Margin With 50% Margin $ $ Calculate the return on investment. Round the answers to two decimal places. Without Margin With 50% MarginAmherst Corporation, an investment banking company, often has extra cash to invest. Suppose Amherst buys900 shares of Hurricane Corporation stock at $57 per share, representing less than 5% ofHurricane’s outstanding stock. Amherst expects to hold the Hurricane stock for one month andthen sell it. The purchase occurs on December 15, 2018. On December 31, the market price of ashare of Hurricane stock is $58 per share.Requirements1. What type of investment is this for Amherst? Give the reason for your answer.2. Record Amherst’s purchase of the Hurricane stock on December 15 and the adjustment tomarket value on December 31.3. Show how Amherst would report this investment on its balance sheet at December 31 andany gain or loss on its income statement for the year ended December 31, 2018.Claire Gerber wants to buy 100 shares of Google, which is selling in the market for $548.66 a share. Rather than liquidate all her savings, she decides to borrow through her broker at 5 percent a year. Assume that the margin requirement on common stock is 50%. If the stock rises to $625 a share over the next year, calculate the dollar profit and percentage return that Claire would earn if she makes the investment with 50% margin. Contrast these figures to what she'd make if she uses no margin. Calculate the dollar net profit. Round the answers to the nearest dollar. Without Margin With 50% Margin Calculate the return on investment. Round the answers to two decimal places. Without Margin With 50% Margin
- Legs Diamond owns shares in Vanguard Index 500 mutual fund worth $1 million on july 15. (This is an index fund that tracks the Standard and Poor's 500 Index.) He wants to cash in now, but his accountant advises him to wait six months so as to defer a large capital gains tax. Explain to Legs how he can use stock index futures to hedge out his exposure to market movements over the next six months. Could Legs “cash in” without actually selling his shares?Melissa wanted to buy Apple Inc. stock, which had a price range of $409 to $582 a month later. The current share price is $488. Her broker advises her that the price of this share could rise to $522 within the next month or so, so she should purchase a one-month Call of Apple. To be prudent in purchasing the call, the share price should be greater than or equal to $522, which her broker could not guarantee. Though she understands the market's uncertainty, she wants to know the probability of reaching the share price of $582 so that she can justify purchasing a one-month Call of Apple at the execution price of $522. Take the continuous compounded risk-free interest to be 3.60% p.a. O 0.3789 0.6211 0.5349 0.4651Not long ago, Vanessa Woods sold her company for several million dollars (after taxes). She took some of that money and put it into the stock market. Today, Vanessa’s portfolio of blue-chip stocks is worth $3.8 million. Vanessa wants to keep her portfolio intact, but she’s concerned about a developing weakness in the market for blue chips. She decides, therefore, to hedge her position with 6-month futures contracts on the Dow Jones Industrial Average (DJIA), which are currently trading at 11,960. a.Why would she choose to hedge her portfolio with the DJIA rather than the S&P 500? b.Given that Vanessa wants to cover the full $3.8 million in her portfolio, describe how she would go about setting up this hedge c.If each contract required a margin deposit of $4,875, how much money would she need to set up this hedge? d.Assume that over the next 6 months stock prices do fall, and the value of Vanessa’s portfolio drops to $3.3 million. If DJIA futures contracts are trading at 10,400, how…
- Mr. Aley bought 320 shares of Apple at $40 per share; he bought the stock at the initial margin of 62%. The stock is now trading at $58.52 per share, and the federal reserve has recently lowered the initial margin requirement to 51%. Alev now wants to do a little pyramiding and buy another 320 shares of stock. What is the minimum amount of equity that he will have to put up in this transaction?Given that Local Care, Inc.'s stock is currently selling for $65 a share, calculate the amount of money that Elijah Pearson will make (or lose) on each of the following transactions. Assume that all transactions involve 100 shares of stock, and ignore brokerage commissions. Input all answers as positive values. He short-sells the stock and then repurchases the borrowed shares at $85.Total of $ . He buys the stock and then sells it some time later at $85.Total of $ . He short-sells the stock and then repurchases the borrowed shares at $50.Total of $ .Arianna just made another fantastic investment: She purchased 400 shares in Great Gains Corporation for $31.5831.58 per share. Yesterday the stock closed at $86.2986.29 per share. In order to lock in her gains, she has decided to employ a stop-loss order. Assuming she set the order at $85.8185.81, what is likely to happen? Why might this not be a wise decision? At what price would you recommend setting the stop-loss order? Why? Question content area bottom Part 1 In order to lock in her gains, she has decided to employ a stop-loss order. Assuming she set the order at $85.8185.81: (Select the best answer below.) A. It is unlikely that the position will be sold as the stock fluctuates around its closing price. B. There is not enough information to answer this. C. It is likely that the position will be sold as the stock fluctuates around its closing price. Your answer is correct. Part 2 At what price would you recommend setting the…
- The Taussig Company, whose stock price is currently $20.50, needs to raise$15 million by issuing common stock. Underwriters have informed Taussig’s managementthat it must price the new issue to the public at $20 per share to ensurethat all shares will be sold. The underwriters’ compensation will be 7 percent of theissue price, so Taussig will net $18.60 per share. The company will also incurexpenses in the amount of $252,000. How many shares must Taussig sell to net$15 million after underwriting and flotation expenses?Suppose that Tesla stock is currently selling at $270 per share. For each of the following situations (ignoring brokerage commissions), calculate the gain or loss that Olivia Crowe realizes if she makes a 100-share transaction. She sells short and repurchases the borrowed shares at $295 per share. She takes a long position and sells the stock at $295 per share. She sells short and repurchases the borrowed shares at $255 per share. She takes a long position and sells the stock at $255 per share.Rhea owns shares in Riko Corp. Currently, the market price of the stock is $36.34. Thecompany expects to grow at a constant rate of 6 percent for the foreseeable future. Its last dividendwas worth $3.25. Rhea’s required rate of return for such stocks is 16 percent. She wants to findout whether she should sell her shares or add to her holdings. Calculate the value of this stock andadvise Rhea on what she should do