3. Suppose you have $10,000 of capital. You spend a lot of effort to analyze Tesla...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
3. Suppose you have $10,000 of capital. You spend a lot of effort to analyze Tesla and you conclude that the future prospects of this company are very good. Your analysis says that the price of this stock will increase by 20%. (a) (5 points) Your broker requires a 50% margin for any leveraged position (but fees are zero). Suppose you take the maximum position possible (i.e., assume no need to hold cash). After the stock price increases, how much profit can you make on your information? (b) (10 points) It is costly for you to analyze stocks, and the outcome of the analysis is uncertain. Suppose that it costs you $5,000 to analyze a stock, and with 50% probability you find the stock is good and with 50% probability you find the stock is fairly priced. At a 50% required margin, is it profitable to produce information? If not, low must the required margin be in order for you t find it profitable to produce information? 3. Suppose you have $10,000 of capital. You spend a lot of effort to analyze Tesla and you conclude that the future prospects of this company are very good. Your analysis says that the price of this stock will increase by 20%. (a) (5 points) Your broker requires a 50% margin for any leveraged position (but fees are zero). Suppose you take the maximum position possible (i.e., assume no need to hold cash). After the stock price increases, how much profit can you make on your information? (b) (10 points) It is costly for you to analyze stocks, and the outcome of the analysis is uncertain. Suppose that it costs you $5,000 to analyze a stock, and with 50% probability you find the stock is good and with 50% probability you find the stock is fairly priced. At a 50% required margin, is it profitable to produce information? If not, low must the required margin be in order for you t find it profitable to produce information?
Expert Answer:
Answer rating: 100% (QA)
a If the stock price increases by 20 then the profit from the p... View the full answer
Related Book For
Introduction To Corporate Finance
ISBN: 9781118300763
3rd Edition
Authors: Laurence Booth, Sean Cleary
Posted Date:
Students also viewed these economics questions
-
How did Stern and Gerlach conclude that the operator measure the z component of the magnetic moment of an Ag atom has only two eigenfunctions with eigenvalues that have the same magnitude and...
-
Suppose you have 10 individuals with values {$1, $2, $3, $4, $5, $6, $7, $8, $9, $10}. Your marginal cost of production is $2.50. What is the profit-maximizing price?
-
Fama and French conclude that the relationship between average return and beta is weak over the period from 1941 to 1990 and virtually nonexistent from 1963 to 1990. Why the relationship between...
-
1. Learn the detail background on ERP systems. Discuss how you would integrate ERP systems internal and external across your entire organization or an organization of your choice? Then discuss the...
-
Alphonse sells stock with a basis of $5,500 to his brother, Conner, for $4,000. His brother sells it later in the year for $5,100. Identify the tax issue(s) posed by the facts presented. Determine...
-
Prepare a comparative common-size income statement for Variline, Inc., using the 2016 and 2015 data of E12-12A. Round percentages to the nearest tenth of a percent. Variline, Inc. Comparative Income...
-
For the goodness-of-fit test to be valid, each of the _______________ frequencies must be at least 5. In Exercises 9 and 10, fill in each blank with the appropriate word or phrase.
-
The following is a December 31, 2021, post-closing trial balance for Almway Corporation. Additional Information:1. The investment in equity securities account includes an investment in common stock...
-
What are the cognitive appraisal processes involved in stress perception, and how can cognitive-behavioral techniques such as cognitive restructuring and mindfulness-based interventions help...
-
I See The Light Projected Income Statement For the Period Ending December 31, 20x1 $ 1,125,000.00 25,000 lamps @ $45.00 @ $30.00 Sales Cost of Goods Sold 750.000.00 Gross Profit $ 375.000.00 Selling...
-
Paul bought the QS4 gaming console for $465. If instead of buying the gaming console Paul invested his money in a fund that earns j2 = 5%, what would be the accumulated value his investment 3 years...
-
What technologies or marketing programs do you rely on to tag and track your newly acquired customers to facilitate a cohort analysis?
-
When you get below the purely aggregate accounting metrics (i.e., annual revenue and profit) and into the underlying customer behavior data, what patterns jump out most readily?
-
Beyond a simple aggregate comparison across two cohorts, does your firm have the discipline and analytical skills to get below the surface to explain the differences?
-
When you see customers seemingly disappearing from one period to the next, are you overreacting? What explanations do you offer, and what kinds of tactics do you engage in as a result (e.g., customer...
-
Have you ever gone a step further to decompose these changes into their underlying components (i.e., number of transactions, average spend per transaction, average margin)? How are these components...
-
Explain the three theories of compensation: Reinforcement and expectancy theory, agency theory, and equity theory. Describe how these theories apply in practice. Could these theories be applied...
-
The relationship described in question 7 does not always appear to hold. What factors, besides the number of firms in the market, might affect margins?
-
FinCorp Inc. wishes to examine the effect of correlation on the efficient frontier that can be created by investing in ABC and FGI. The expected return of ABC is 6 percent, with a standard deviation...
-
What are some of the advantages of carrying inventories?
-
On Monday evening, Codina Model Steam Engine Company announced that it would be restating its financial statements for the past five years, and its CFO was arrested for fraud. Interpret the following...
-
The following are cutoff values for the upper 5% of a \(t\)-distribution with either degrees of freedom 10, 50 , or 100: \(2.23,1.98\), and 2.01. Identify which value belongs to which distribution...
-
Researchers interested in lead exposure due to car exhaust sampled the blood of 52 police officers subjected to constant inhalation of automobile exhaust fumes while working traffic enforcement in a...
-
Suppose that you are interested in determining whether exposure to the organochloride DDT, which has been used extensively as an insecticide for many years, is associated with breast cancer in women....
Study smarter with the SolutionInn App