Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 3.8, Problem 1EQ
Suppose you by 100 shares of stock initially selling for $50, borrowing 25% of the necessary funds from your broker; that is, the initial margin on your purchase is 25%, You pay an interest rate of 8% on margin loans.
a, How much of your own money do you invest? How much do you borrow from your broker?
b. What will be your
(i) $40 (ii) $50: (iii) $60
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose that you are willing to pay $450.33 today for a share of stock which you expect to sell at the end of one year for $500.25. If you require an annual rate of return of 15 percent, what should be the estimate of the amount of the annual dividend which you expect to receive by the end of Year 1 prior to the sale of the stock? Assume that the estimated return equals the required rate of return.
Options:
a.
$17.63
b.
$1.60
c.
$10.99
d.
$19.25
e.
$3.60
You are considering whether to purchase a company's stock. The stock is expected to pay two dividends, $1.50
at the end of year 1 and $1.75 at the end of year 2. The expected selling price of the stock is $17.50 at the end of
year 2. If you require a rate of return of 16% per year for the investment, what is the maximum price that you are
willing to pay per share?
Select one:
a. $14.61
b. $15.49
C. $14.51
d. $15.60
e. $14.17
You purchase 100 shares of stock for $25 a share. The stock pays a $3 per share dividend at year-end.
a. What is the rate of return on your investment if the end-of-year stock price is (i) $22; (ii) $25; (iii) $26?
b. What is your real (inflation-adjusted) rate of return if the inflation rate is 2%?
Chapter 3 Solutions
Essentials Of Investments
Ch. 3.8 - Suppose you by 100 shares of stock initially...Ch. 3.8 - Repeat Question 1 assuming your initial margin was...Ch. 3.9 - Suppose you sell short 100 shares of stock...Ch. 3.9 - Repeat Question t (b) but now assume that the...Ch. 3 - Prob. 1PSCh. 3 - What are some different components of the...Ch. 3 - Prob. 3PSCh. 3 - Prob. 4PSCh. 3 - In what cirecumstances are private placements more...Ch. 3 - Prob. 6PS
Ch. 3 - Prob. 8PSCh. 3 - How do margin trades magnify both the upside...Ch. 3 - A market order has: (LO 3-2) a. Price uncertainty...Ch. 3 - Where would an illiquid security in a developing...Ch. 3 - Are the following statements true or false? If...Ch. 3 - Prob. 13PSCh. 3 - Prob. 14PSCh. 3 - Prob. 15PSCh. 3 - Old Economy Traders opened an account to...Ch. 3 - Prob. 17PSCh. 3 - You are bullish on Telecom stock. The current...Ch. 3 - Prob. 19PSCh. 3 - Prob. 20PSCh. 3 - Prob. 21PSCh. 3 - Prob. 22PSCh. 3 - Prob. 23PSCh. 3 - Prob. 24CCh. 3 - Prob. 25CCh. 3 - Are all of the brokerage firms suitable ii you...Ch. 3 - Choose two of the firms listed. Assume that you...Ch. 3 - Prob. 4WM
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- You purchase a stock for $50 per share today. It will pay a dividend of $1.75 next month. If you can sell it for $65 right after the dividend is paid, what is the dividend yield? What is the capital gain? What is the rate of return?arrow_forwardWhat should you pay for a stock assuming you expect the following: a dividend of 1.50 paid at the end of years 1 and 2; cost of equity equal to 16 percent; and, a selling price of 45 at the end of two years?arrow_forwardSuppose XYZ stock pays no dividends and has a current price of $50. The forward price for delivery in 1 year is $55. Suppose the 1-year eective annual interest rate is 10%. (a) Graph the payo and prot diagrams for a forward contract on XYZ stock with a forward price of $55. (b) Is there any advantage to investing in the stock or the forward contract? Why? (c) Suppose XYZ paid a dividend of $2 per year and everything else stayed the same. Now is there any advantage to investing in the stock or the forward contract? Why?arrow_forward
- Suppose you bought XYZ stock 1 year ago for $6.54 per share and sell it at $2.79. You also pay a commission of $0.35 per share on your sale. What is the total return on your investment? The total return is %?arrow_forwardIslander Corporation's common stock will pay a dividend of $3.50 one year from now. You plan to buy the stock now and sell at the end of one year for $70. At what price must you buy in order to receive your required return of 18%? Solve using excelarrow_forwardYou purchase 100 shares of stock for $47 a share. The stock pays a $3 per share dividend at year - end. What is the rate of return on your investment for these end-of-year stock prices? What is your real (inflation - adjusted) rate of return? Assume an inflation rate of 4%. (Round your answers to 2 decimal places. Use the minus sign for negative numbers if it is necessary.) a) End of year stock price = $43 Real rate of return = ? Real rate= ? b) End of year stock price = $47 Real rate of return= ? Real rate= ? c) End of year stock price = $50 Real rate of return= ? Real rate = ?arrow_forward
- A stock is selling today for $50 per share. At the end of the year, it pays a dividend of $3 per share and sells for $56. Required: a. What is the total rate of return on the stock? b. What are the dividend yield and percentage capital gain? c. Now suppose the year-end stock price after the dividend is paid is $48. What are the dividend yield and percentage capital gain in this case? A Required What is the total rate of return for the stock? B Required What is the dividend yield and percentage capital gain? C Required Now suppose the year-end stock price after the dividend is paid is $48. What are the dividend yield and percentage capital gain in this case? (Negative amounts should be indicated by a minus sign. Enter your answers as a whole percent.)arrow_forwardA stock is selling today for $50 per share. At the end of the year, it pays a dividend of $2 per share and sells for $57. Required: a. What is the total rate of return on the stock? b. What are the dividend yield and percentage capital gain? c. Now suppose the year-end stock price after the dividend is paid is $43. What are the dividend yield and percentage capital gain in this case?arrow_forwardYour broker has recommended that you purchase stock in ZZZ-Best, Inc. She estimates that the 1-year target price is $70, and ZZZ-Best consistently pays an annual dividend of $8. Based on your analysis, you estimate that the stock has a required rate of 18%. What is the intrinsic value of this stock? O $64.43 O $68.73 O $67.35 O $61.86 O $66.10arrow_forward
- Suppose you buy OMR2000 worth of stock on margin. The initial margin is 60% and the maintenance margin is 30%. a. How much have you borrowed? What is your equity? b. Suppose the value of the stock rises by 15% to OMR2300. What is the return on your investment? c. Suppose the value of the stock falls by 15% to OMR1700. What is the return on your investment? d. Does buying a stock on margin increase or decrease your risk of investment? Use the results in parts b and c to answer the question.arrow_forwardYou consider buying a share of stock at a price of $950. The stock is expected to pay a dividend of $10 next year, and your advisory service tells you that you can expect to sell the stock in 1 year only for $945. What is the expected rate of return?arrow_forward2. Preferred Products has issued preferred stock with an $8 annual dividend that will be paid in perpetuity. a. If the discount rate is 12%, at what price should the preferred sell? (Round your answer to the nearest cent.) b. At what price should the stock sell one year from now? (Round your answer to the nearest cent.) c. What is the dividend yield, the capital gains yield, and the expected rate of return of the stock? (Round your answer to the nearest whole number. If no entry is required, please, enter zero ("0").)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY