Investment Analysis and Portfolio Management (9th ed.)

. FINANCE major. Book from: Frank K. Reilly, & Keith C. Brown, (2009). Mason, OH: South-Western/ Cengage Learning. Book used by Strayer University.

Problems:

3. Suppose you buy a round lot of Francesca Industries stock on 55 percent margin when the stock is selling at $20 a share. The broker charges a 10 percent annual interest rate, and commissions are 3 percent of the stock value on the purchase and sale. A year later, you receive a $0.50 per share dividend and sell the stock for 27. What is your rate of return on Francesca Industries?

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.