投资学精要-博迪-第八版-chapter3

Chapter03-SecuritiesMarkets3-1CHAPTER03SECURITIESMARKETS1.AnIPOisthefirsttimeaformerlyprivatelyownedcompanysellsstocktothegeneralpublic.AseasonedissueistheissuanceofstockbyacompanythathasalreadyundergoneanIPO.2.Theeffectivepricepaidorreceivedforastockincludesitemssuchasbid-askspread,brokeragefees,commissions,andtaxes(whenapplicable).Thesereducetheamountreceivedbyasellerandincreasethecostincurredbyaseller.3.Theprimarymarketisthemarketfornewissuesofsecurities,whilethesecondarymarketisthemarketforalready-existingsecurities.Corporationssellstockintheprimarymarket,whileinvestorspurchasestockfromotherinvestorsinthesecondarymarket.4.Onesourceofthespecialist’sincomeisfrequenttradingatthebidandaskprices,withthespreadasatradingprofit.Sincethespecialistalsotakesapositioninsecuritiesandmaintainstheultimatediaryofbuysandsells,thetraderhastheabilitytoprofitbytradingoninformationnotavailabletoothers.5.Whenafirmasawillingbuyerofsecuritiesandwishestoavoidtheextensivetimeandcostassociatedwithpreparingapublicissue,theymayissuessharesprivately.6.Astoporderisatradeisnottobeexecutedunlessstockhitsapricelimit.Thestop-lossisusedtolimitlosseswhenpricesarefalling.Anorderspecifyingapriceatwhichaninvestoriswillingtobuyorsellasecurityisalimitorder,whileamarketorderdirectsthebrokertobuyorsellatwhateverpriceisavailableinthemarket.7.Blockordersarethebuyingandsellingorlargequantitiesofstock,usuallybyinstitutionalinvestors.Theadventofelectronictradingnowpermitstradestobebrokenintosmallerunits,thusavoidingthenegativeimpactonpricesusuallyexperiencebyblocktrades.8.Underwriterspurchasesecuritiesfromtheissuingcompanyandresellthem.Aprospectusisadescriptionofthefirmandthesecurityitisissuing.9.Marginisatypeofleveragethatallowsinvestorstopostonlyaportionofthevalueofthesecuritytheypurchase.Assuch,whenthepriceofthesecurityrisesorfalls,thegainorlossrepresentsamuchhigherpercentage,relativetotheactualmoneyinvested.Chapter03-SecuritiesMarkets3-210.a.Inprinciple,potentiallossesareunbounded,growingdirectlywithincreasesinthepriceofIBM.b.Ifthestop-buyordercanbefilledat$128,themaximumpossiblelosspershareis$8.IfthepriceofIBMsharesgoabove$128,thenthestop-buyorderwouldbeexecuted,limitingthelossesfromtheshortsale.11.Answerstothisproblemwillvary.12.a.Inadditiontotheexplicitfeesof$60,000,DRKappearstohavepaidanimplicitpriceinunderpricingoftheIPO.Theunderpricingis$4pershare,oratotalof$400,000,implyingtotalcostsof$460,000.b.No.Theunderwritersdonotcapturethepartofthecostscorrespondingtotheunderpricing.Theunderpricingmaybearationalmarketingstrategy.Withoutit,theunderwriterswouldneedtospendmoreresourcesinordertoplacetheissuewiththepublic.Theunderwriterswouldthenneedtochargehigherexplicitfeestotheissuingfirm.Theissuingfirmmaybejustaswelloffpayingtheimplicitissuancecostrepresentedbytheunderpricing.13.a.Thestockispurchasedfor:300x$40=$12,000Theamountborrowedis$4,000.Therefore,theinvestorputupequity,ormargin,of$8,000.b.Ifthesharepricefallsto$30,thenthevalueofthestockfallsto$9,000.Bytheendoftheyear,theamountoftheloanowedtothebrokergrowsto:$4,000x1.08=$4,320Therefore,theremainingmarginintheinvestor’saccountis:$9,000-$4,320=$4,680Thepercentagemarginisnow:$4,680/$9,000=0.52=52%Therefore,theinvestorwillnotreceiveamargincall.c.Therateofreturnontheinvestmentovertheyearis:(Endingequityintheaccount-Initialequity)/Initialequity=($4,680-$8,000)/$8,000=-0.415=-41.5%Chapter03-SecuritiesMarkets3-314.a.Theinitialmarginwas:0.50x1,000x$40=$20,000AsaresultoftheincreaseinthestockpriceOldEconomyTradersloses:$10x1,000=$10,000Therefore,margindecreasesby$10,000.Moreover,OldEconomyTradersmustpaythedividendof$2persharetothelenderoftheshares,sothatthemarginintheaccountdecreasesbyanadditional$2,000.Therefore,theremainingmarginis:$20,000–$10,000–$2,000=$8,000b.Thepercentagemarginis:$8,000/$50,000=0.16=16%Sotherewillbeamargincall.c.Theequityintheaccountdecreasedfrom$20,000to$8,000inoneyear,forarateofreturnof:(-$12,000/$20,000)=-0.60=-60%15.a.Thebuyorderwillbefilledatthebestlimit-sellorderprice:$50.25b.Thenextmarketbuyorderwillbefilledatthenext-bestlimit-sellorderprice:$51.50c.Youwouldwanttoincreaseyourinventory.Thereisconsiderablebuyingdemandatpricesjustbelow$50,indicatingthatdownsideriskislimited.Incontrast,limitsellordersaresparse,indicatingthatamoderatebuyordercouldresultinasubstantialpriceincrease.16.a.Youbuy200sharesofTelecomfor$10,000.Thesesharesincreaseinvalueby10%,or$1,000.Youpayinterestof:0.08x5,000=$400Therateofreturnwillbe:000,5$400$000,1$=0.12=12%b.Thevalueofthe200sharesis200P.Equityis(200P–$5,000).Youwillreceiveamargincallwhen:P200000,5$P200=0.30whenP=$35.71orlowerChapter03-SecuritiesMarkets3-417.a.Initialmarginis50%of$5,000or$2,500.b.Totalassetsare$7,500($5,000fromthesaleofthestockand$2,500putupformargin).Liabilitiesare100P.Therefore,networthis($7,500–100P).Amargincallwillbeissuedwhen:P100P100500,7$=0.30whenP=$57.69orhigher18.ThebrokerisinstructedtoattempttosellyourMarriottstockassoonastheMarriottstocktradesatabidpriceof$20orless.Here,thebrokerwillattempttoexecute,butmaynotbeabletosellat