Even complicated and confusing topics will be easily developed and covered if you request our help writing an essay. Place an order today!




Chapter 4: Problems 4, 5, 6, and 7


4. You decide to sell short 100 shares of Charlotte Horse Farms when it is selling at its yearly


high of $56. Your broker tells you that your margin requirement is 45 percent and that the


commission on the purchase is $155. While you are short the stock, Charlotte pays a $2.50


per share dividend. At the end of one year, you buy 100 shares of Charlotte at $45 to close


out your position and are charged a commission of $145 and 8 percent interest on the


money borrowed. What is your rate of return on the investment?


120 Part 1: The Investment Background


Property of Cengage Learning


5. You own 200 shares of Shamrock Enterprises that you bought at $25 a share. The stock is


now selling for $45 a share.


a. You put in a stop loss order at $40. Discuss your reasoning for this action.


b. If the stock eventually declines in price to $30 a share, what would be your rate of return


with and without the stop loss order?


6. Two years ago, you bought 300 shares of Kayleigh Milk Co. for $30 a share with a margin


of 60 percent. Currently, the Kayleigh stock is selling for $45 a share. Assuming no dividends


and ignoring commissions, compute (a) the annualized rate of return on this investment


if you had paid cash, and (b) your rate of return with the margin purchase.


7. The stock of the Madison Travel Co. is selling for $28 a share. You put in a limit buy order


at $24 for one month. During the month the stock price declines to $20, then jumps


to $36. Ignoring commissions, what would have been your rate of return on this investment?


What would be your rate of return if you had put in a market order? What if


your limit order was at $18?




Chapter 6: Problems 1, 2, 3, and 4


1. Compute the abnormal rates of return for the following stocks during period t (ignore differential








systematic risk):        Stock                Rit                 Rmt


                                         B                  11.5%            4.0%


                                          F                  10.0               8.5


                                          T                  14.0               9.6


                                          C                  12.0              15.3


                                          E                   15.9             12.4


Rit = return for stock i during period t


Rmt = return for the aggregate market during period t


2. Compute the abnormal rates of return for the five stocks in Problem 1 assuming the following


systematic risk measures (betas):


                                                          Stock                                    βi


                                                              B                                       0.95


                                                              F                                       1.25


                                                             T                                         1.45


                                                             C                                         0.70


                                                             E                                         −0.30


3. Compare the abnormal returns in Problems 1 and 2 and discuss the reason for the difference


in each case.


Chapter 6: Efficient Capital Markets 179


4. Look up the daily trading volume for the following stocks during a recent five-day period:


• Merck


• Caterpillar


• Intel


• McDonald’s


• General Electric


Randomly select five stocks from the NYSE, and examine their daily trading volume for


the same five days.


a. What are the average volumes for the two samples?


b. Would you expect this difference to have an impact on the efficiency of the markets for


the two samples? Why or why not?


testimonials icon
System PlanningIn this course, you will progressively work on a system implementation process in six stages:...
testimonials icon
What are some advantages of valuating a stock based on discounted cash flows?With the availability of cash flow valuations,...
testimonials icon
Macroeconomics800-1000 wordsThe financial crisis of 2008 has caused macroeconomists to rethink monetary and fiscal poli...
testimonials icon
The social ecology of health model provides a strong framework for comprehending the impact culture and behavior has on health.This discussion expl...
testimonials icon
 Answer the following question to the best of your ability. Use quotations, where necessary, to make/support your...
testimonials icon
1Discuss the current economic environment in the U.S., including the likelihood that we are facing a double-dip recessi...
testimonials icon
To prepare for this journal, watch Social Influence (2017). Reflect on this topic.  Specifically, consider concepts other than those covered in di...
testimonials icon
Schizophrenia, like many other mental illnesses effects thought processes,behavior, and emotions....
testimonials icon
Assignment 4, Part 2 (optional): Research Project Re-Submission The option to improve your grade on this assignme...
testimonials icon
1.  The amount of information can sometimes hamper the outcome expected by the end user. In other words, clutter can hinder the intended message....

Other samples, services and questions:

Calculate Price

When you use PaperHelp, you save one valuable — TIME

You can spend it for more important things than paper writing.

Approx. price
Order a paper. Study better. Sleep tight. Calculate Price!
Created with Sketch.
Calculate Price
Approx. price