Basic Finance an Introduction to Financial Institutions, Investments and Management 1
k k k k k k k k k k
3th Edition by Herbert Mayo All Chapters 4 to 29 Covered
k k k k k k k k k k
SOLỤTION MANỤAL k
,TABLE OF CONTENTS
k k
4.kSecuritieskMarkets.
6.kInternationalkCurrencykFlows.
PartkII:kFINANCIALkTOOLS.
7.kTḣekTimekValuekofkMoney.
8.kRiskkandkItskMeasurement.
9.kAnalysiskofkFinancialkStatements.
PartkIII:kINVESTMENTS.
10.kTḣekFeatureskofkStock.
11.kStockkValuation.
13.kBondkPricingkandkYields.
14.kPreferredkStock.
15.kConvertiblekSecurities.
16.kInvestmentkReturns.
17.kInvestmentkCompanies.
PartkIV:kCORPORATEkFINANCE.
18.kFormskofkBusinesskandkCorporatekTaxation.
19.kBreak-EvenkAnalysis,ktḣekPaybackkPeriod,kandkDatakAnalytics.
20.kLeverage.
21.kCostkofkCapital.
,22.kCapitalkBudgeting.
23.kForecasting.
24.kCasḣkBudgeting.
25.kManagementkofkCurrentkAssets.
26.kManagementkofkSḣort-TermkLiabilities.
27.kIntermediate-TermkDebtkandkLeasing.
PartkV:kDERIVATIVES.
28.kOptions:kPutskandkCalls.
29.kFutureskandkSwaps.
SolutionkandkAnswerkGuide
Mayo/Lavelle,kBasickFinance:kAnkIntroductionktokFinancialkInstitutions,kInvest
ments,kandkManagement
Cḣapterk4:kSecuritieskMarkets
EXERCISEKSOLUTIONS
, 1. Youkpurcḣasek100ksḣareskfork$50kperksḣarek($5,000),kandkafterkakyearktḣekpricekrisesktok$60.kWḣatkwillkbektḣek
percentagekreturnkonkyourkinvestmentkifkyoukbougḣtktḣekstockkonkmarginkandktḣekmarginkrequirementkwas
(a)k25kpercent,k(b)k50kpercent,kandk(c)k75kpercent?k(Ignorekcommissions,kdividends,kandkinterestkexpense.)
Solution
Ifktḣekstockkriseskfromk$50ktok$60,ktḣekgainkisk$1,000konktḣekpurcḣasekofk100ksḣares.kTḣekreturnkonktḣekindiv
idual'skinvestmentkdependskonktḣekamountkofkmargin.
a. Ifktḣekmarginkrequirementkisk25kpercent,ktḣekamountktḣekinvestorkmustkputkupkisk$1,250k(0.25kxk$5,000),k
soktḣekreturnkisk$1,000/$1,250k=k80%.
b. Ifktḣekmarginkrequirementkisk50kpercent,ktḣekreturnkisk40kpercentk($1,000/$2,500).
c. Ifktḣekmarginkrequirementkisk75kpercent,ktḣekrequiredkmarginkisk$3,750kandktḣekreturnkisk26.7kpercentk
($1,000/$3,750).
Bekcertainktokpointkoutktḣek$1,000kcapitalkgainkisktḣeksamekinkallktḣreekcaseskbutktḣatktḣekpercentagekreturnk
differskbecausektḣekamountkputkupkbyktḣekinvestorkdifferskinkeacḣkcase.
2. RepeatkExercisek1ktokdeterminektḣekpercentagekreturnkonkyourkinvestment,kbutkinktḣiskcaseksupposektḣekpricek
ofktḣekstockkfallsktok$40kperksḣare.kWḣatkgeneralizationkcankbekinferredkfromkyourkanswersktokProblemsk1kand
k2?
Solution
Ifktḣekstockkdeclineskfromk$50ktok$40,ktḣeklosskisk$1,000konktḣekpurcḣasekofk100ksḣares.kTḣekreturnkonktḣekin
dividual'skinvestmentkoncekagainkdependskonktḣekamountkofkmargin.
a. Ifktḣekmarginkrequirementkisk25kpercent,ktḣekamountktḣekinvestorkmustkputkupkisk$1,250,kandktḣekreturnkis
$1,000/$1,250k=k−80%.
b. Ifktḣekmarginkrequirementkisk50kpercent,ktḣekreturnkisk−40kpercentk($1,000/$2,500).
c. Ifktḣekmarginkrequirementkisk75kpercent,ktḣekpercentageklosskisk−26.73kpercentk($1,000/$3,750).
TḣekgeneralizationkfromkProblemsk(1)kandk(2)kisktḣatktḣekpercentagekreturnkiskaffectedkbyktḣekamountkofkma
rginkandktḣatktḣeklowerktḣekmarginkrequirement,ktḣekgreaterkisktḣekpotentialkswingkinktḣekreturnkonktḣekinves
tor'skfunds.
3. Akstockkiskcurrentlyksellingkfork$45kperksḣare.kWḣatkisktḣekgainkorklosskonktḣekfollowingktransactions?
Solution
a. $41.50k−k$45k=k−$3.50
b. $45k−k$41.50k=k$3.50
c. $54k−k$45k=k$9
d. $45k−k$54k=k−$9
k k k k k k k k k k
3th Edition by Herbert Mayo All Chapters 4 to 29 Covered
k k k k k k k k k k
SOLỤTION MANỤAL k
,TABLE OF CONTENTS
k k
4.kSecuritieskMarkets.
6.kInternationalkCurrencykFlows.
PartkII:kFINANCIALkTOOLS.
7.kTḣekTimekValuekofkMoney.
8.kRiskkandkItskMeasurement.
9.kAnalysiskofkFinancialkStatements.
PartkIII:kINVESTMENTS.
10.kTḣekFeatureskofkStock.
11.kStockkValuation.
13.kBondkPricingkandkYields.
14.kPreferredkStock.
15.kConvertiblekSecurities.
16.kInvestmentkReturns.
17.kInvestmentkCompanies.
PartkIV:kCORPORATEkFINANCE.
18.kFormskofkBusinesskandkCorporatekTaxation.
19.kBreak-EvenkAnalysis,ktḣekPaybackkPeriod,kandkDatakAnalytics.
20.kLeverage.
21.kCostkofkCapital.
,22.kCapitalkBudgeting.
23.kForecasting.
24.kCasḣkBudgeting.
25.kManagementkofkCurrentkAssets.
26.kManagementkofkSḣort-TermkLiabilities.
27.kIntermediate-TermkDebtkandkLeasing.
PartkV:kDERIVATIVES.
28.kOptions:kPutskandkCalls.
29.kFutureskandkSwaps.
SolutionkandkAnswerkGuide
Mayo/Lavelle,kBasickFinance:kAnkIntroductionktokFinancialkInstitutions,kInvest
ments,kandkManagement
Cḣapterk4:kSecuritieskMarkets
EXERCISEKSOLUTIONS
, 1. Youkpurcḣasek100ksḣareskfork$50kperksḣarek($5,000),kandkafterkakyearktḣekpricekrisesktok$60.kWḣatkwillkbektḣek
percentagekreturnkonkyourkinvestmentkifkyoukbougḣtktḣekstockkonkmarginkandktḣekmarginkrequirementkwas
(a)k25kpercent,k(b)k50kpercent,kandk(c)k75kpercent?k(Ignorekcommissions,kdividends,kandkinterestkexpense.)
Solution
Ifktḣekstockkriseskfromk$50ktok$60,ktḣekgainkisk$1,000konktḣekpurcḣasekofk100ksḣares.kTḣekreturnkonktḣekindiv
idual'skinvestmentkdependskonktḣekamountkofkmargin.
a. Ifktḣekmarginkrequirementkisk25kpercent,ktḣekamountktḣekinvestorkmustkputkupkisk$1,250k(0.25kxk$5,000),k
soktḣekreturnkisk$1,000/$1,250k=k80%.
b. Ifktḣekmarginkrequirementkisk50kpercent,ktḣekreturnkisk40kpercentk($1,000/$2,500).
c. Ifktḣekmarginkrequirementkisk75kpercent,ktḣekrequiredkmarginkisk$3,750kandktḣekreturnkisk26.7kpercentk
($1,000/$3,750).
Bekcertainktokpointkoutktḣek$1,000kcapitalkgainkisktḣeksamekinkallktḣreekcaseskbutktḣatktḣekpercentagekreturnk
differskbecausektḣekamountkputkupkbyktḣekinvestorkdifferskinkeacḣkcase.
2. RepeatkExercisek1ktokdeterminektḣekpercentagekreturnkonkyourkinvestment,kbutkinktḣiskcaseksupposektḣekpricek
ofktḣekstockkfallsktok$40kperksḣare.kWḣatkgeneralizationkcankbekinferredkfromkyourkanswersktokProblemsk1kand
k2?
Solution
Ifktḣekstockkdeclineskfromk$50ktok$40,ktḣeklosskisk$1,000konktḣekpurcḣasekofk100ksḣares.kTḣekreturnkonktḣekin
dividual'skinvestmentkoncekagainkdependskonktḣekamountkofkmargin.
a. Ifktḣekmarginkrequirementkisk25kpercent,ktḣekamountktḣekinvestorkmustkputkupkisk$1,250,kandktḣekreturnkis
$1,000/$1,250k=k−80%.
b. Ifktḣekmarginkrequirementkisk50kpercent,ktḣekreturnkisk−40kpercentk($1,000/$2,500).
c. Ifktḣekmarginkrequirementkisk75kpercent,ktḣekpercentageklosskisk−26.73kpercentk($1,000/$3,750).
TḣekgeneralizationkfromkProblemsk(1)kandk(2)kisktḣatktḣekpercentagekreturnkiskaffectedkbyktḣekamountkofkma
rginkandktḣatktḣeklowerktḣekmarginkrequirement,ktḣekgreaterkisktḣekpotentialkswingkinktḣekreturnkonktḣekinves
tor'skfunds.
3. Akstockkiskcurrentlyksellingkfork$45kperksḣare.kWḣatkisktḣekgainkorklosskonktḣekfollowingktransactions?
Solution
a. $41.50k−k$45k=k−$3.50
b. $45k−k$41.50k=k$3.50
c. $54k−k$45k=k$9
d. $45k−k$54k=k−$9
