Determine the profit or loss that mary has made

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Reference no: EM132031557

(A) Tom and Mary have each decided to buy 100 shares of a high performing Internet stock. The current price of the stock is $240 per share. Tom places a market order while Mary has decided to place a limit order at $230 per share. One week later, the price of the stock never did decline but rose steadily to $305 per share.

Question 1: At least on paper, how much profit or loss would Tom show after one week? Ignore transaction costs. Show your work.

Question 2: Determine the profit or loss that Mary has made after one week, again ignoring transaction costs. Show your work.

Question 3: If the stock had dipped in price to $230 prior to reaching $305 by week's end, what would have been Mary's profit or loss?

(B) You are thinking of purchasing a stock that is currently priced at $120 per share. It pays an annual dividend of $5.00 per share.

Question 1: Assume that you buy the stock on margin paying $80 per share and borrowing the rest from your broker at 8.0% annual interest. You hold the stock for one year and then sell it for $150 per share. Calculate your return on the stock.

Question 2: Rework question 1, but assume that after holding the stock for one year, you sell it for $70 (instead of $150). Now what is the return on your stock?

Question 3: Rework question 1 again but assume that you instead decide to use your personal funds rather than buying on margin to make the stock purchase. Determine what the return on your stock.

Reference no: EM132031557

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