Google

Stock Value on 12/11/09 $590.51

Stock Value on 1/11/10 $601.11

Stock Value on 2/11/10 $536.40

A. Suppose that it is the end of the day on December 11, 2009. The current stock price of Google is $590.51. You have $10,000 to invest and decide to buy Google stock. At the end of the day on January 11, 2010, you decide to sell your position in Google stock. What is your return? 10,000/590.51= 16.93. You own 16 shares for $590.51 each= total 9,448.16 and sell at $601.11 each= total 9,617.76. The return is is $169.60 or 1.79%

B. Now suppose that on December 11, 2009, you are extremely bullish on Google. Not

only do you want to buy Google stock, but you want to buy on margin. Suppose that

your broker requires a margin of 50%. Also, your broker charges you interest at a rate

of 0.03% per day. You decide to invest so that your initial margin is 60%. What is the

value of stock that you buy? How many shares did you buy?

C. Continuing on the above margin question: Suppose that you sell at the end of the day

on January 11, 2010 [31 days]. What is your return? Compare this to the case where

you did not buy on margin.

D. Suppose that you instead held Google until February 11, 2010 [62 days]. What is your

return? Compare this to the case where you did not buy on margin. What lessons do

you learn about buying on margin?

Answer rating: 100% (QA)

Answer Lets address each part of the question A As you correctly calculated the return on your inves... View the full answer