I am a retail investor interested in the recent visit of President Biden to Vietnam. I...

 

Transcribed Image Text:

I am a retail investor interested in the recent visit of President Biden to Vietnam. I believe that this visit will severely restrict commercial relations with China over the next six months to one year. As a result, I decide to take short positions on Apple, Costco and Walmart stocks, all corporations that rely heavily on suppliers from China. What instructions will you give to your broker to 1) a. (1 pt.) benefit from a projected price fall of the three stocks and b. (1 pt.) mitigate my losses if I am wrong in my projections? You are bullish on Telcom stock. The current market price is $50/share and you plan to purchase the stock on margin. You have $30,000 to invest and your broker has an initial margin requirement of 60% and a maintenance margin of 30%. The interest rate on the broker's funds is 5% per year. a. (2 pts.) How low would the price of Telcom stock has to fall for you to receive a margin call from your broker? b. (2 pts.) Assume that on a very bad earnings call, the CFO of Telcom discloses a projected revenue loss of 50% by year end. In response, the stock drops suddenly to $25/share. How much are you asked to deposit in the account to restore the margin to 30 %? (note: margin is calculated as the net work in the account divided by the market value of the securities) 3. (2 pts.) What are the differences and the similarities between options and futures contracts? What is the main difference between futures and forward contracts? 4. (2 pts.) Explain the difference in taxation between municipal and Treasury bonds? In general, which of these two types of bonds will be more expensive and why? I am a retail investor interested in the recent visit of President Biden to Vietnam. I believe that this visit will severely restrict commercial relations with China over the next six months to one year. As a result, I decide to take short positions on Apple, Costco and Walmart stocks, all corporations that rely heavily on suppliers from China. What instructions will you give to your broker to 1) a. (1 pt.) benefit from a projected price fall of the three stocks and b. (1 pt.) mitigate my losses if I am wrong in my projections? You are bullish on Telcom stock. The current market price is $50/share and you plan to purchase the stock on margin. You have $30,000 to invest and your broker has an initial margin requirement of 60% and a maintenance margin of 30%. The interest rate on the broker's funds is 5% per year. a. (2 pts.) How low would the price of Telcom stock has to fall for you to receive a margin call from your broker? b. (2 pts.) Assume that on a very bad earnings call, the CFO of Telcom discloses a projected revenue loss of 50% by year end. In response, the stock drops suddenly to $25/share. How much are you asked to deposit in the account to restore the margin to 30 %? (note: margin is calculated as the net work in the account divided by the market value of the securities) 3. (2 pts.) What are the differences and the similarities between options and futures contracts? What is the main difference between futures and forward contracts? 4. (2 pts.) Explain the difference in taxation between municipal and Treasury bonds? In general, which of these two types of bonds will be more expensive and why?

Answer rating: 100% (QA)

Instructions to Broker 1 Short Positions on Apple Costco and Walmart a Benefit from a projected price fall of the three stocks Open short positions on Apple Costco and Walmart stocks This involves bor... View the full answer