FIN 501 Chapter Notes - Chapter 1: Dividend, Dividend Yield, The Dominion Bank

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jademallard37

17 Jul 2012

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Chapter 1: a brief history of risk and return. If you buy an asset of any type, your gain (or loss) from that investment is called the return on your investment. This return has 2 components: you may receive some cash directly while you own the investment, the value of the asset you purchase may change (you have a capital gain or capital loss on your investment) Ex: you purchased 100 shares of stock in toronto dominion bank on jan 1st. At that time, td was selling for per share, so your 100 shares cost you . At the end of the year, you want to see how you did with your investment: a company may pay cash dividends to its shareholders. As a shareholder in td, you are a part owner of the company, and you are entitled to a portion of any money distributes.

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You want to short sell 100 shares of PQR using a 60% margin. Themaintenance margin is 30%. The current price of PQR is $40. Howmuch money did you have to invest today? What price will trigger amargin call? What is the overall rate of return on your investmentif the stock is selling at a price of $48 in 1 year? What is theoverall rate of return on your investment if the stock is sellingat a price of $34 in 1 year?

) You want to buy 100 shares of MNO using a 60% margin. Themaintenance margin is 30%. The current price of MNO is $70. Howmuch money did you have to invest today and how much money did youborrow? What price will trigger a margin call? What is the overallrate of return on your investment if you sell the stock 6 monthslater at a price of $77? What is the overall rate of return on yourinvestment if you sell the stock 6 months later at a price of$65. (assume the margin loan (call rate) rate is 8% peryear).

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After reading this chapter, it isn't surprising that you're becoming an investment wizard. With your newfound expertise, you purchase 100 shares of KSU Corporation for $28.42 per share. Assume the price goes up to $ 34.05 per share over the next 12 months and you receive a qualified dividend of $0.55 per share. What would be your total return on your KSU Corporation investment? Assuming you continue to hold the stock, calculate your after-tax return. How is your realized after-tax return different if you sell the stock? In both cases assume you are in the 25 percent federal marginal tax bracket and 15 percent long-term capital gains and qualified dividends tax bracket and there is no state income tax on investment income

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After reading this chapter, it isn't surprising that you're becoming an investment wizard. With you newfound expertise, you purchase 100 shares of KSU Corporation for $37 per share. OVer the next 12 months assume the price goes up to $45 per share and you receive a qualified dividend of $0.50 per share. What would be your total return on your KSU Corporation investment? Assuming you continue to hold the stock, calculate the after-tax return. How is your realzed after-tax return different if you sell the stock? In both cases, aussme you are in the 25 percent federal marginal tax bracket and 15 percent long-term capital gains and qualified dividends tax bracket and there is no state income tax on investment income.

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FIN 501 Chapter Notes - Chapter 1: Dividend, Dividend Yield, The Dominion Bank

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