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Assignment 1st
Assignment 1st
Badla is a mechanism to carry forward a speculative trade. It is also known as the Carry Over
Transaction (COT).
Badla Finance in simple terms means putting money on interest. The mechanism is very easy for the
stockbroking society but complex for the ordinary investor. History says Badla was born in the
nineteenth century. Then, till today, the purpose has remained the same, the mechanism has hardly
changed but the process has. These changes have made Badla Finance safer, more secure and
transparent to clients besides a fair business practice for the stockbrokers
In finance, a margin is collateral that the holder of a financial instrument has to deposit to cover
some or all of the credit risk of his counterparty (most often his broker or an exchange). This risk
can arise if the holder has done any of the following:
The collateral can be in the form of cash or securities, and it is deposited in a margin account.
On U.S. futures exchanges, "margin" was formally called performance bond.
Most investors buy common stocks for two reasons. Stocks typically offer investors a
cash dividend in addition to the potential for capital gains. Here we will present a
method of calculating stock prices based on a constant growth model, which uses a
discounted cash flows approach.
Since investors buy stocks for both the dividends they pay today and the possibility of a gain in a
stock's selling price, then the expected return the investor can be expressed by the following
calculation:
This expected return for a stock is also known as the market capitalization rate or discount rate.
We're going to use all three terms interchangeably throughout our calculations / explanations in
this article. Let's look at a quick example of how this works.
In this example:
We can now use this expected return to calculate the price of a stock in the same risk class as
Stock A using the following formula:
Stock Price = (Dividends Paid (Div) + Expected Price (P1)) / (1 + Expected Return (R))
Some of you may recognize this stock price calculation as the beginnings of a discounted cash
flow formula. Essentially, the price of a stock is the cash flows gained by the stockholder
divided by the discount rate or market capitalization rate
ANS 2
This really depends on what kind of stock exchange you're talking about and what kind of
computation system that stock exchange uses. For example, the Dow Jones Industrial aVg and
Nikkei 225 use the price-weighted index method but the most common type used is the value
weighted index method.
The value-weighted index is generated by deriving the initial total marker value of all stocks
used in the index (Mkt value = No. of shares outstanding * current market price). Then, a new
market value is computed for all securities in the index, and the current market value is
comapred to the initial "base" market value to determine the percentage of change, which in turn
is applied to the beginning index value.
Solved
What is meant by 1 point? How get one point up? How get one point down?
In the US, the index will be made up of a particular set of listed companies (say the top 500 for the S&P).
At a certain point in time, the aggregate capitalized value of the top 500 companies were added up, and
that number became 100. Every daily change in the value is compared to that original day (or divided by
it) to get the new index.
The resulting change from day to day becomes the number of points the index has increased. So, the
stock market going up 100 points means it has increased in capitalized value compared to yesterday.
Also note :
Points
Points apply to security prices. In the case of shares, one point indicates $1.00 per share. For bonds and
debentures, one point means 1% of par value. Par value is almost universally 100 for bonds.
ANS 2
For example: If the Nasdaq100 Index value is at 1800 and goes up 5 points to 1805 the
difference is 5 points which equals $100.
ANS 3
If the Dow Jones is at 10,600 and it goes up to 10,700 that is 100 points
ANS 4
One full point movement in a Stock Index is equal to one currency unit of the country the index belongs
to. For example, one point movement in DJIA30, S&P500 or NASDAQ100 would be equal to US$1.
Similarly, one point movement in any of the UK indices would be equal to £1, one point movement in
German, French, Dutch, Belgian indices would equal 1 Euro, and one point movement in NIKKEI225
would equal 1 Yen etc.
Number of points movement in a Stock Index multiplied by the number of CFD contracts you trade
(minimum is 1 CFD contract), determines your profit or loss.