You purchased 2,500 shares of the New Fund at a price of $20 per share at the beginning of the year. You paid a front-end load of 4%. The securities in which the fund invests increase in value by 11% during the year. The fund’s expense ratio is 2.7%. What is your rate of return on the fund if you sell your shares at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Rate of return %

4-16

Corporate Fund started the year with a net asset value of $12.90. By year-end, its NAV equaled $12.30. The fund paid year-end distributions of income and capital gains of $1.40.

What was the rate of return to an investor in the fund? (Round your answer to 2 decimal places.)

Rate of return %

3-24

On January 1, you sold short one round lot (that is, 100 shares) of Lowe’s stock at $24.70 per share. On March 1, a dividend of $1.50 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $20.50 per share. You paid 20 cents per share in commissions for each transaction.

a. What is the proceeds from the short sale (net of commission)?

Proceeds from the short sale $2470.00

b. What is the dividend payment?

Dividend payment $150.00

c. What is the total cost, including commission, if you have to cover the short sale by buying the stock at a price of $20.50 per share?

Total cost including commission $

d. What is the value of your account on April 1?

Value of account $

100 24.7 2470

100 1.5 150

100 20.5 2050 2070

150 2070 -1920

Problem 3-15

Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at $60 per share. She borrows $2,000 from her broker to help pay for the purchase. The interest rate on the loan is 10%.

a. What is the margin in Dée’s account when she first purchases the stock?

Margin $

b-1. If the share price falls to $50 per share by the end of the year, what is the remaining margin in her account? (Round your answer to 2 decimal places.)

Remaining margin %

b-2. If the maintenance margin requirement is 30%, will she receive a margin call? yes

c. What is the rate of return on her investment? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

Rate of return % 3-19

You are bearish on Telecom and decide to sell short 100 shares at the current market price of $38 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?

Initial margin $1900.00

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? (Round your answer to 2 decimal places.)

Stock price reaches $

3-16

Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $130 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $130 to $144.00, and the stock has paid a dividend of $22.00 per share.

a. What is the remaining margin in the account?

Remaining margin $

b-1. What is the margin on the short position? (Round your answer to 2 decimal places.)

Short margin %

b-2. If the maintenance margin requirement is 30%, will Old Economy receive a margin call?

c. What is the rate of return on the investment? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

Rate of return %

2-23

A T-bill with face value $10,000 and 97 days to maturity is selling at a bank discount ask yield of 4.4%.

a. What is the price of the bill? (Use 360 days a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Price of the bill $

b. What is its bond equivalent yield? (Use 365 days a year. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Bond equivalent yield %

2-13

A municipal bond carries a coupon rate of 7.50% and is trading at par.

What would be the equivalent taxable yield of this bond to a taxpayer in a 35% tax bracket? (Round your answer to 2 decimal places.)

Equivalent taxable yield %

4-18

Loaded-Up Fund charges a 12b-1 fee of 1% and maintains an expense ratio of 0.60%. Economy Fund charges a front-end load of 2%, but has no 12b-1 fee and an expense ratio of 0.40%. Assume the rate of return on both funds’ portfolios (before any fees) is 6% per year.

a. How much will an investment of $100 in each fund grow to after 1 year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Loaded-Up Fund $

Economy Fund $

b. How much will an investment of $100 in each fund grow to after 3 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Loaded-Up Fund $

Economy Fund $

c. How much will an investment of $100 in each fund grow to after 10 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Loaded-Up Fund $

Economy Fund $

3-18

You are bullish on Telecom stock. The current market price is $70 per share, and you have $21,000 of your own to invest. You borrow an additional $21,000 from your broker at an interest rate of 8.8% per year and invest $42,000 in the stock.

a. What will be your rate of return if the price of Telecom stock goes up by 10% during the next year? (Ignore the expected dividend.) (Round your answer to 2 decimal places).

Rate of return %

b. How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately. (Round your answer to 2 decimal places.)

Stock price falls below $.

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