219 L 1. ) Heading 1 Heading 2 Heading Heading 4 = Find Replace Select- Dict G Paragraph Bridgewater State University Cake-Home Problem Set #1 Styles V ACFI 490 Investments Page 2 of 13 Summer 2021 -oblem #1: Margin Buying (30 points) An investor bought 25,000 shares of Pharmaceutical Company for $32.50 per share. Since the initial purchase exactly one year ago, the market price of the stock has risen to $36.75 per share. Pharmaceutical Company has paid a $1.65 cash dividend on its stock during the past year. What was the return on the investment in Pharmaceutical Company to the investor during the first year of the investment? Amount Investment Return (4 points) 13.07% SUPPORTING COMPUTATION REQUIRED: 36.7525,000=918,750 25,000*32.50=812,500 918,750-812,500=106,250 106,250/812,750=1307 I O E G X > $ & 3 % 5 4 6 7 8 9 E R T Y U P D C Au AEE ALT I. AaBl. Aalbo 1. Aall a) Aa Heading 1 Heading 2 Heading 3 Heading 4 Find Replace Select Didate Paragraph styles ding Vot b. Assume the investor purchased the stock on margin and borrowed funds at the exchange's initial margin requirement limit of 60%. The broker charged 5% interest paid by the investor out-of-pocket. 1) Calculate the amount of the initial equity and the loan/debit balance on the margin account. Amount Initial Equity (2 points) Loan/Debit Balance (2 points) SUPPORTING COMPUTATION REQUIRED: 918,750-812,500-48,750 .06*812,500=48,750 I S O 11 G PE Fm > % 8 AU 7 0) 8 9 5 3 O E o U E R T Y water State University -Home Problem Set #1 Summer 2021 ACFI 490 Investments Page 3 of 13 2) Calculate the return on the investment in Pharmaceutical Company in the margin account to the investor during the first year of the investment? Amount Investment Return on Margin Account (4 points) SUPPORTING COMPUTATION REQUIRED: O BE 2 $ % & ( 2 00* 3 4 6 Il + 7 9 E R T Y U 1 o P s D F G H J L IX C B V N N M Alt Sie Ctrl Alt Heading 1 Heading 2 Heading Heading 4 Dictate Select Paragraph Editing Voice c. Briefly explain the benefits of margin buying by comparing the return on the margin account to the return from purchasing the securities for cash. (4 points) o G e - PEL + C F 8 S % 5 6 7 8 g 3 O U E R T E H . C 219 L 1. ) Heading 1 Heading 2 Heading Heading 4 = Find Replace Select- Dict G Paragraph Bridgewater State University Cake-Home Problem Set #1 Styles V ACFI 490 Investments Page 2 of 13 Summer 2021 -oblem #1: Margin Buying (30 points) An investor bought 25,000 shares of Pharmaceutical Company for $32.50 per share. Since the initial purchase exactly one year ago, the market price of the stock has risen to $36.75 per share. Pharmaceutical Company has paid a $1.65 cash dividend on its stock during the past year. What was the return on the investment in Pharmaceutical Company to the investor during the first year of the investment? Amount Investment Return (4 points) 13.07% SUPPORTING COMPUTATION REQUIRED: 36.7525,000=918,750 25,000*32.50=812,500 918,750-812,500=106,250 106,250/812,750=1307 I O E G X > $ & 3 % 5 4 6 7 8 9 E R T Y U P D C Au AEE ALT I. AaBl. Aalbo 1. Aall a) Aa Heading 1 Heading 2 Heading 3 Heading 4 Find Replace Select Didate Paragraph styles ding Vot b. Assume the investor purchased the stock on margin and borrowed funds at the exchange's initial margin requirement limit of 60%. The broker charged 5% interest paid by the investor out-of-pocket. 1) Calculate the amount of the initial equity and the loan/debit balance on the margin account. Amount Initial Equity (2 points) Loan/Debit Balance (2 points) SUPPORTING COMPUTATION REQUIRED: 918,750-812,500-48,750 .06*812,500=48,750 I S O 11 G PE Fm > % 8 AU 7 0) 8 9 5 3 O E o U E R T Y water State University -Home Problem Set #1 Summer 2021 ACFI 490 Investments Page 3 of 13 2) Calculate the return on the investment in Pharmaceutical Company in the margin account to the investor during the first year of the investment? Amount Investment Return on Margin Account (4 points) SUPPORTING COMPUTATION REQUIRED: O BE 2 $ % & ( 2 00* 3 4 6 Il + 7 9 E R T Y U 1 o P s D F G H J L IX C B V N N M Alt Sie Ctrl Alt Heading 1 Heading 2 Heading Heading 4 Dictate Select Paragraph Editing Voice c. Briefly explain the benefits of margin buying by comparing the return on the margin account to the return from purchasing the securities for cash. (4 points) o G e - PEL + C F 8 S % 5 6 7 8 g 3 O U E R T E H . C