1. You are bullish on Telecom stock.

The current market price is RM 5 per share, and you have RM 7,000 of your own to invest.
your broker at an interest rate of 5% per year and invest RM 10,000 in the stock.

a. What will be your rate of return if the price of Telecom stock goes up by 15% during the next year? (Ignore the exp

Equity 7000
Borrow@5% 3000
Total Investment 10000
Stock 5
# of shares 2000
Interest 150
Stock goes up 1.15
New stock price 5.75

Gross profit 1500

Net Profit 1350

RR(%) 19.29

b. How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 25%?
immediately.

Margin Call:
Formula
No of Shares *Price- Borrowings
NO of Shares *Price

Maintenance margin 0.25

Price for Margin Call 2

At P= 2 the investor would get a margin call

2. You are bearish on Telecom and decide to sell short 150 shares at the current market price of RM 8 per share.

a. How much in cash or securities must you put into your brokerage account if the broker's initial margin requirement
position?

Shares 150
Price 8
margin(%) 0.5
Equity 600
b. How high can the price of the stock go before you get a margin call if the maintenance margin is 25% of the value

Maintenance margin 0.25

Total investment 1200
Shares 150 37.5
Price for margin call 9.6

At P= 9.6 the investor would get a margin call

3. Suppose that Intel currently is selling at RM 6 per share. You buy 5000 shares using RM 25,000 of your own mon
purchase price from your broker. The rate on the margin loan is 4%.

a. What is the percentage increase in the net worth of your brokerage account if the price of Intel
3.60?

Equity 25000
Borrow@4% 5000
Total Investment 30000

Share(RM) 6
Total shares 5000

Selling price(RM) 8 6 3.6

Purchase price(RM) 6 6 6

Gross profit 2 0 -2.4

% return 33.33 0 -40
Networth 35000 25000 13000
% change in networth 40 0 -48

b. If the maintenance margin is 35%, how low can Intel's price fall before you get a margin call?

Margin maintanence 0.35

Price for margin call 1.54

At P= 1.57 the investor would get a margin call

c. How would your answer to (b) change if you had financed the initial purchase with only RM 20,000 of your own m

Equity 20000
Borrow@4% 10000
Total Investment 30000
Share(RM) 6
Total shares 5000

Margin maintanence 0.35

Price for margin call 3.08

The price would change from 1.57 to 3.08 to get a margin call

d. What is the rate of return on your margined position (assuming again that you invest RM 15,000 of your own mon
(i) RM 8; (ii) RM 6; (iii) RM 3.60?

Equity 15000
Borrow@4% 15000
Total Investment 30000

Share(RM) 6
Total shares 5000

Selling price(RM) 8 6 3.6

Purchase price(RM) 6 6 6

Gross profit 2 0 -2.4

Shares*gross profit 10,000 0 (12,000)
interest 600 600 600
Net profit 9,400 (600) (12,600)
% return 62.67 -4 -84

4. Suppose that you sell short 1500 shares of Genting currently selling for RM 12 per share, and give your broke
account.

Total shares 1500

share price 12
Total share price 18000
Equity 9000
Borrow 9000
Total Investment 18000

a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Intel s
12; (iii) RM 16? Assume that Genting pays no dividends.

Selling price 12 12 12
Purchase price 8 12 16
Profit/Loss 4 0 -4
Net profit 6000 0 -6000
Return rate(%) 66.67 0.00 -66.67

b. If the maintenance margin is 20%, how high can Gentings price rise before you get a margin call?

Margin 0.2
Price for margin call 7.5

At P=30 the invester would get a margin call

5
Bid - RM Ask - RM
Petronas 11.75 12.25
Tenaga 7.5 8.4

a)You have asked your broker to buy 500 Petronas shares. At what price he will buy? How much you have to pay him

Total shares 500

Price 12.25
Commission 1.02
Total price 6247.5

You have asked your broker to sell 200 Tenaga shares. At what price he will sell? How much you will receive from h

Total shares 200

Price 7.5
Commission 1.03
Total price 1545

6. An open end fund has a net asset value of RM 12.56 per share. It is sold with a front end load of 5%. What is the o

NAV 12.56
Commission 0.05
Offering price 13.22

7. If the offering price of an open end fund is RM 7.25 per share. If the fund is sold with a front end load of 3% what
7. If the offering price of an open end fund is RM 7.25 per share. If the fund is sold with a front end load of 3% what

Offering price 7.25

front end load 0.03
NAV 7.03

8. The composition of AMNO fund portfolio is as follows:

Name Shares Price
CCM 300000 8.45
Benari 250000 2.56
Shukra 400000 5.85
Wong 150000 7.45

The fund has borrowed RM 2 million and its accrued management fees is RM 0.5 million. There are 4 million shares

Name Shares Price Value

CCM 300000 8.45 2535000
Benari 250000 2.56 640000
Shukra 400000 5.85 2340000
Wong 150000 7.45 1117500
Total Value 6632500

Borrowing(mil) 2
Management fee(mil) 0.5
Portfolio value(mil) 6.6325

Shares outstanding(mil) 4
NAV 1.03

9. If the AMNO fund sells all the Benari shares and if it is replaced with Petronas shares what is the portfolio turnove

Note: # of Petronas shares and price not given in question

10. A closed end fund starts the year with a net asset value of RM 12.00. By the year end NAV equals to 12.80. At the
selling at a premium of 5% to NAV. By the end of the year the fund was selling at 3% discount to NAV. The fund paid
capital gains of RM 2.25.
What is the rate of return to an investor during the year?

NAV start(RM) 12
Premium(5) 0.05
Market price(RM) 12.6

NAV end(RM) 12.8

Discount(%) 0.03
Market price(RM) 12.42

Income 2.25
RR(%) 16.40

11. Go to the thestar website and down load any 20 mutual funds data for one week and compare NAV. Find out how
and how many are selling at discount.
have RM 7,000 of your own to invest. You borrow an additional RM 3,000 from

uring the next year? (Ignore the expected dividend.)

if the maintenance margin is 25%? Assume the price fall happens

rice of RM 8 per share.

broker's initial margin requirement is 50% of the value of the short

enance margin is 25% of the value of the short position?

using RM 25,000 of your own money and borrowing the remainder of the

e price of Intel immediately changes to: (i) RM 8; (ii) RM 6; (iii) RM

a margin call?

with only RM 20,000 of your own money?

nvest RM 15,000 of your own money) if Intel is selling after one year at:

12 per share, and give your broker RM 9,000 to establish your margin

ate of return after one year if Intel stock is selling at: (i) RM 8; (ii) RM
 get a margin call?

uy? How much you have to pay him if he charges 2% commission?

How much you will receive from him if he charges 3% commission?

ront end load of 5%. What is the offering price?

d with a front end load of 3% what is its net asset value?

d with a front end load of 3% what is its net asset value?

million. There are 4 million shares outstanding. What is the NAV?

shares what is the portfolio turnover rate?

ar end NAV equals to 12.80. At the beginning of the year the fund was
3% discount to NAV. The fund paid year end distributions of income and
k and compare NAV. Find out how many funds are selling at premium