1. Compare and contrast credit risk with liquidity risk. 2. Describe the size, s
ID: 2633040 • Letter: 1
Question
1. Compare and contrast credit risk with liquidity risk.
2. Describe the size, structure and composition of the mutual fund industry. Do you consider these characteristics as having a positive or negative impact on investors ? Why ?
3. An investment bank pays $ 23.00 for 4 million shares of JC Co., and then resells them for $ 25 per share. How much money does JC receive? What is the profit to the investment bank ? 7. An investment bank pays $ 20.50 per share for 3 million shares of X. It then sells these shares to the public for $ 22.50 per share. How much money does X receive ? What is the profit to the investment bank ? What is the stock price of X ?
Explanation / Answer
A. An investment bank pays $ 23.00 for 4 million shares of JC Co., and then resells them for $ 25 per share. How much money does JC receive? What is the profit to the investment bank?
Sale proceed from shares = $25*4,000,000 = $100,000,000 ..Ans (a)
Cost of Buying Shares = $23*4,000,000 = $92,000,0000
So profit = Sale- Cost = 100,000,000 - 92,000,000
= 8,000,000 .........Ans (b)
B. An investment bank pays $ 20.50 per share for 3 million shares of X. It then sells these shares to the public for $ 22.50 per share. How much money does X receive? What is the profit to the investment bank? What is the stock price of X?
Amount paid to X for Shares = $20.50*3,000,000
= $61,500,0000 ........Ans (a)
Sale proceed from shares to Public = $22.5*3,000,000
= $67,500,000
So profit to Bank = Sale- Cost = 67,500,000 - 61,500,000
= 6,000,000 .........Ans (b)
Stock price of X will be the cost of acquision for public which is $22.50
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