Finance Chapter 3 and 4 Problems Set

Complete the following:1. Chapter 3: problem sets, numbers 12, 13, 14, 15, 16, and 172. Chapter 4: problem sets, numbers 11, 13, 15, 16, 22, 24, 27, and 28APA format is not required, but solid academic writing is expected.Chapter 312. Suppose you short-sell 100 shares of IBM, now selling at $200 per share. (LO 3-4)a. What is your maximum possible loss?b. What happens to the maximum loss if you simultaneously place a stop-buy orderat $210?13. Call one full-service broker and one discount broker and find out the transaction costsof implementing the following strategies: (LO 3-3)a. Buying 100 shares of IBM now and selling them six months from now.b. Investing an equivalent amount in six-month at-the-money call options on IBMstock now and selling them six months from now.14. DRK, Inc., has just sold 100,000 shares in an initial public offering. The underwriter’sexplicit fees were $60,000. The offering price for the shares was $40, but immediatelyupon issue, the share price jumped to $44. (L O 3-1)a. What is your best guess as to the total cost to DRK of the equity issue?b. Is the entire cost of the underwriting a source of profit to the underwriters?15. Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at$40 per share. She borrows $4,000 from her broker to help pay for the purchase. Theinterest rate on the loan is 8%. (LO 3-4)a. What is the margin in Dée’s account when she first purchases the stock?b. If the share price falls to $30 per share by the end of the year, what is the remainingmargin in her account? If the maintenance margin requirement is 30%, will shereceive a margin call?c. What is the rate of return on her investment?16. Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreamsfrom the previous question. The initial margin requirement was 50%. (The marginaccount pays no interest.) A year later, the price of Internet Dreams has risen from $40to $50, and the stock has paid a dividend of $2 per share. (LO 3-4)a. What is the remaining margin in the account?b. If the maintenance margin requirement is 30%, will Old Economy receive a margin call?c. What is the rate of return on the investment?17. Consider the following limit order book for a share of stock. The last trade in the stockoccurred at a price of $50. (LO 3-3)Limit Buy Orders Limit Sell OrdersPrice Shares Price Shares$49.75 500 $50.25 10049.50 800 51.50 10049.25 500 54.75 30049.00 200 58.25 10048.50 600a. If a market buy order for 100 shares comes in, at what price will it be filled?b. At what price would the next market buy order be filled?c. If you were a security,would you want to increase or decrease your inventory ofthis stock?Chapter 411. An open-end fund has a net asset value of $10.70 per share. It is sold with a front-endload of 6%. What is the offering price?13. The composition of the Fingroup Fund portfolio is as follows:Stock Shares PriceA 200,000 $35B 300,000 40C 400,000 20D 600,000 25The fund has not borrowed any funds, but its accrued management fee with the portfoliomanager currently totals $30,000. There are 4 million shares outstanding. What isthe net asset value of the fund?15. The Closed Fund is a closed-end investment company with a portfolio currently worth$200 million. It has liabilities of $3 million and 5 million shares outstanding. (LO 4-3)a. What is the NAV of the fund?b. If the fund sells for $36 per share, what is its premium or discount as a percent ofNAV?16. Corporate Fund started the year with a net asset value of $12.50. By year-end, its NAVequaled $12.10. The fund paid year-end distributions of income and capital gains of$1.50. What was the rate of return to an investor in the fund?22. The New Fund had average daily assets of $2.2 billion in the past year. The fund sold$400 million and purchased $500 million worth of stock during the year. What was itsturnover ratio?24. You purchased 1,000 shares of the New Fund at a price of $20 per share at the beginningof the year. You paid a front-end load of 4%. The securities in which the fundinvests increase in value by 12% during the year. The fund’s expense ratio is 1.2%. Whatis your rate of return on the fund if you sell your shares at the end of the year?27. Suppose that every time a fund manager trades stock, transaction costs such as commissionsand bid–ask spreads amount to .4% of the value of the trade. If the portfolio turnoverrate is 50%, by how much is the total return of the portfolio reduced by tradingcosts? (LO 4-5)28. You expect a tax-free municipal bond portfolio to provide a rate of return of 4%. Managementfees of the fund are .6%. What fraction of portfolio income is given up to fees?If the management fees for an equity fund also are .6%, but you expect a portfolio returnof 12%, what fraction of portfolio income is given up to fees? Why might managementfees be a bigger factor in your investment decision for bond funds than for stock funds?Can your conclusion help explain why unmanaged unit investment trusts tend to focuson the fixed-income market?