SHOW WORK PLEASE 1. You purchased 1,000 shares of a stock at $20 per share. Your
ID: 2723400 • Letter: S
Question
SHOW WORK PLEASE
1. You purchased 1,000 shares of a stock at $20 per share. Your margin is 80%. Later, the stock goes up in value by 20%. What is your current equity position in the stock?
$20,000
$16,000
$24,000
None of the above
2.Which of the following responses to abnormal price movements is consistent with the "efficient market hypothesis"?
Extreme one-day movements in stock prices will be followed by significant movements in the opposite direction
Extreme one-day movements in stock prices will be followed by significant movements in the same direction
Extreme one-day movements in stock prices will not be followed by significant movements in stock prices
None of the above
3. Exxon Mobil Corp recently paid a dividend of $1.31. Analysts expect the company's earnings to grow at the rate of 5% over the next several years. Using the constant growth valuation model, estimate the company's stock value if investors require 8.5%.
$39.30
$37.43
$28.57
None of the above
$20,000
$16,000
$24,000
None of the above
2.Which of the following responses to abnormal price movements is consistent with the "efficient market hypothesis"?
Extreme one-day movements in stock prices will be followed by significant movements in the opposite direction
Extreme one-day movements in stock prices will be followed by significant movements in the same direction
Extreme one-day movements in stock prices will not be followed by significant movements in stock prices
None of the above
3. Exxon Mobil Corp recently paid a dividend of $1.31. Analysts expect the company's earnings to grow at the rate of 5% over the next several years. Using the constant growth valuation model, estimate the company's stock value if investors require 8.5%.
$39.30
$37.43
$28.57
None of the above
Explanation / Answer
Solution for question 1
Number of stock Purchase = 1,000
Price pf stock = $20
Total value of investment = $20 × 1,000
= $20,000
Total value of investment = $20,000
Margin = 80%
So value of equity in investment = $20,000 × 80%
= $16,000
Value of equity in investment = $16,000
Value of borrow fund = $4,000
Stock price goes up by 20%.
So total value of investment = $20,000 × (1 + 20%)
= $24,000
Total value of investment after increase = $24,000
Value of debt = $4,000
So value of equity after increase in value of investment = $24,000 - $4,000
= $20,000
Hence, value of equity in investment after increase is $20,000.
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