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1. You have just bought (on margin) 100 shares of IBM Corp. common stock for $108 per share. One year from now you expect to sell the stock for $140. The interest charge will be 9%. What return do you expect to earn on your investment? (Show all work. Ignore commissions.)

2. You have inherited $250,000. You have decided that since you don't need the money currently, you should invest for the long-term. After seeking advice, you decide on an asset allocation plan that puts 10% in short-term securities, 75% in equities, and 15% in bond funds. How much money would you put in each category? (Show all work.)

3. You have just bought 100 shares of ABC Corporation common stock at 70.50. The commission is calculated as 1.5% of the total value of the transaction plus $30. What commission will you be charged and how much must you pay the broker for the entire transaction? (Show all work.)

4. Monte wants to save for his daughter's college education. He would like to have $85,000 in 15 years. If Monte can earn an average of 8.5% on this fund, how much would he need to deposit in the account today to meet his goal?

If Monte has no money to set aside now but wants to save at the end of each month for this goal, how much would he need to add to the account each month?

5. Abe owns 1000 shares of Amazon, which he purchased for $12 per share 3 months ago. Abe just checked the price of Amazon and found that it is selling for $19 per share. He is so excited about his gain that he has booked a $6,000 20-day trip to Hawaii for he and his wife. He wants to be sure that the trip will be paid for entirely from gains in his Amazon shares because his wife has been nagging him about his frequent stock trading habit and he feels that this trip will demonstrate to her once and for all that he has the skills, acumen and instincts to get rich trading stocks. He feels strongly that the price of Amazon stock will go through the roof in the intermediate term but is concerned about short-term volatility. Abe's plan is to sell the shares only if the value of his shares either declines below $18,000 or if the value climbs to $30,000. He would like to submit his stock orders right now, because for the next three weeks it is very important to his marriage that he not trade or even follow the market (maybe just a peek at CNBC while his wife is in the shower). Which of the following set of stock orders would accomplish his pathetic goals?

  • SubjectBusiness
  • TopicFinance
  • Difficulty LevelCollege/University
  • Answer has attachmentsYes
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Rachel Saunders
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