EXERCISE

1. Suppose that you sell short 100 shares of IBX, now selling at $70 per share
a. What is your maximum possible loss?

Answer: The stock is

2.

purchased for $40 × 300 shares

= $12,000.
Given that the amount
3.

borrowed from the broker is

$4,000, Dee’s margin is the
initial
purchase price net borrowing:
4.

$12,000 – $4,000 = $8,000.

Answer: The stock is
5.

purchased for $40 × 300 shares

= $12,000.
Given that the amount
6.

borrowed from the broker is

$4,000, Dee’s margin is the
initial
purchase price net borrowing:
7.

$12,000 – $4,000 = $8,000.

Answer: The stock is
8.

purchased for $40 × 300 shares

= $12,000.
Given that the amount
9.

borrowed from the broker is

$4,000, Dee’s margin is the
initial
purchase price net borrowing:
10.

$12,000 – $4,000 = $8,000.

Answer: The stock is
11.

purchased for $40 × 300 shares

= $12,000.
 Given that the amount
12.

borrowed from the broker is

$4,000, Dee’s margin is the
initial
purchase price net borrowing:
13.

$12,000 – $4,000 = $8,000.

a. What happens to the maximum loss if you simultaneously place a stop-buy order
at $78?

2. Dee Trader opens a brokerage account and purchases 300 shares of Internet Dreams
at $40 per share. She borrows $4,000 from her broker to help pay for the purchase.
The interest rate on the loan is 8%.
a. What is the margin in Dee’s account when she first purchases the stock?

Answer: The stock is purchased

for $40 × 300 shares = $12,000.
Given that the amount borrowed
from the broker is $4,000, Dee’s
margin is the initial
purchase price net borrowing:
$12,000 – $4,000 = $8,000.
Answer: The stock is purchased for $40 × 300 shares = $12,000. Given that the amount
borrowed from the broker is $4,000, Dee’s margin is the initial purchase price net borrowing:
$12,000 – $4,000 = $8,000.
b. If the price falls to $30 per share by the end of the year, what is the remaining
margin in her account? If the maintenance margin requirement is 30%, will
she receive a margin call?
Answer: If the share price falls to $30, then the value of the stock falls to $9,000. By the end
of the year, the amount of the loan owed to the broker grows to:
Principal × (1 + Interest rate) = $4,000 × (1 + 0.08) = $4,320.
The value of the stock falls to: $30 × 300 shares = $9,000.
The remaining margin in the investor’s account is: $9,000 − $4,320 = $4,680.
Answer: Margin on long position = Equity in account / Value of stock = $4,680 / $9,000 =
0.52 = 52%
Therefore, the investor will not receive a margin call.
c. What is the rate of return on her investment?
Answer: Rate of return = (Ending equity in account - Initial equity in account) / Initial equity
in account = ($4,680 - $8,000) / $8,000 = – 0.4150 = − 41.50%

3. Old Economy Traders opened an account to short sell 1,000 shares of Internet
Dreams from the previous problem. The initial margin requirement was 50%. (The
margin account pay no interest). A year later, the price of Internet Dreams has risen
from $40 to $50, and the stock has paid a dividend of $2 per share.

a. What is the remaining margin in the account?

Answer: The initial margin was: $40 × 1,000 × 0.50 = $20,000.
As a result of the $10 increase in the stock price, Old Economy Traders loses: $10 × 1,000
shares = $10,000.
Moreover, Old Economy Traders must pay the dividend of $2 per share to the lender of the
shares: $2 × 1,000 shares = $2,000.
The remaining margin in the investor’s account therefore decreases to: $20,000 – $10,000 –
$2,000 = $8,000.
b. If the maintenance margin requirement is 30%, will Old Economy receive a
margin call?
Answer: Margin on short position = Equity / Value of shares owed = $8,000 / ($50 × 1,000
shares) = 0.16 = 16%
Because the percentage margin falls below the maintenance level of 30%, there will be a
margin call.
c. What is the rate of return on her investment?
Answer: The rate of return = (Ending equity - Initial equity) / Initial equity = ($8,000 -
$20,000) / $20,000 = – 0.60 = – 60%
4. Suppose that Intel currently is selling at $40 per share. You buy 500 shares, using
$15,000 of your own money and borrowing the remainder of the purchase price
from your broker. The rate on the margin loan is 8%.

a. What is percentage increase in the net worth of your brokerage account if the
price of Intel immediately changes to (i) $44, (ii) $40, (iii) $36? What is the
relationship between your percentage gain or loss and the percentage change
in the price of Intel?
b. If the maintenance margin is 25%, how low can Intel’s price fall before you
get a margin call?
c. How would your answer to (b) change if you had financed the initial purchase
with only $10,000 of your own money? What is the rate of return on your
margined position (assuming again that you invest $15,000 of your own
money) if Intel is selling after 1 year at (i) $44, (ii) $40, (iii) $36)? What is the
relationship between your percentage return and the percentage change in the
price of Intel? Assume that Intel pays no dividends.
d. Continue to assume that a year has passed. How low can Intel’s price fall
before you get a margin call?
5. You have borrowed $20,000 on margin to buy shares in Disney, which is now selling
at $40 per share. Your account starts at the initial margin requirement of 50%. The
maintenance margin is 35%.
Two days later, the stock price falls to $35 per share.
a. Will you receive a margin call?
b. How low can the price of Disney shares fall before you receive a margin call?
6. Consider the three stocks in the following table. Pt represents price at time t, and Qt
represents shares outstanding at time t. Stock C splits two for one in the last period.

P0 Q0 P1 Q1 P2 Q2
 A 90 100 95 100 95 100

B 50 200 45 200 45 200

C 100 200 110 200 55 400

a. Calculate the rate of return on a price – weighted index of the three stocks for
the first period
(t=0, t=1)
b. What must happen to the divisor for the price – weighted index in year 2?
c. Calculate the rate of return for the second period (t = 1 to t =2)
d. Calculate the first-period rates of return on the following indexes of the three
stocks:
i. A market-value-weighted index

ii. An equally weighted index

7. FBN, Inc.., has just sold 100,000 shares in an initial public offering. The
underwriter’s explicit fees were $70,000. The offering price for the shares was $50,
but immediately upon issue the share price jumped to $53.
a. What is your best guess as to the total cost to FBN of the equity issue?
b. Is the entire cost of the underwriting a source of profit to the underwriters?
8. You are looking to investment securities by involving with the purchase of shares
listed on the market. You go to the securities company and open a trading account
and deposit $7,000. You plan to buy shares VNM.
a. On 12/12/2010, the stock price of VNM is $8.5per share, if you want to buy
1000 shares VNM, what do you do?
b. Suppose that ten days later the share price of VNM decrease to $6 per share.
Will you receive a margin call? What happen if you don’t meet the margin
call?
Assuming that:
- Maintenence margin is 80%
 - Brokerage fees are 0.3% of transaction value - Interest
rate is 0.1% / day.
9. Assume that the last execution price before the call market period of that day was
24.000 VND, the trading system selected period of 14:30 – 14:45 as the closing
session, and at that time, there were orders of stock XYZ as below. Determine the
closed price of XYZ company stock?

Buying Order Price Selling order

600 (A) 24000 700 (F)

1700 (B) 24300 1500 (G)

2200 (C) 24900 4000 (H)

3000 (D) 25000 2400 (I)

2300 (E) ATC 1200 (K)
a. Determine the trading result?
b. Calculate the brokerage fee of investor K and investor E. The brokerage fee
rate is 0,35%.
10. Assume that during the morning trading section, the trading system receive orders
of stock ABC as below. Based on continuous orders matching, determine the results
of this stock.
Time Investor Buying quantitative Price Selling quantitative Price

9h16 A 3000 35.5

9h17 B 1000 35

9h18 C 2500 35.4

9h19 D 3000 35.6

9h20 E 3200 MP
11. Joint- stock company A announces they will issue 18000 new shares by multi-price
share auction. Starting price is 30000/share.
All information about price and quantity of each investor is as follow
Investors Asking price (1000 Quantity
VND)
 A 30 7000
B 30.1 6000
C 30.5 3600
D 31 3000
E 31.5 2000
F 31.8 1150

a. Determine investors who success in this share auction and the price and
quantity they could buy
b. Determine the average price
12. An Dutch Bond Auction for raising 500 Billion Dong for Forever A Loan
Corporation is shown in the following table:
Name of Investors Interest Rate (%) Auction volume
(Bidders) ( Billion Dong)

A 0 100

B 7.35 250

C 7.4 150

D 7.5 70

E 7.55 300

F 7.85 80
a. Determine auction results (realized interest rates and volume for that auction and
each bidder)
b. Does the 0% rate affect the result of the auction, try to explain why the investor bid
0%
13. On Oct 16, 20X7, no-right trading day (the day that stock purchasers will has no
rights related to stocks bought on) of Cash-Dividend Payment with 20% paying rate,
continuous trading data of XYZ shares (HNX) is shown in the following table:
Buying Selling

Number Price Price

of (1000VND Number of (1000VND
Time shares per share) shares per share)

9h35 (A)1200 36.5 - -

 9h40 - - (B) 4000 36.6
9h41 (D) 500 36.4

9h42 (C) 6300 MP

9h43 ( E) 500 36.8

9h44 (F) 6000 36.5

a) Determine the matching prices and trading volume for each time
b) Providing that an investor’s trading account on Oct 15, 20X7 is detailed as
following, determine cash dividends that investor would receive.
Name of Average purchasing price Number of shares
share
ACB 16.1 3000
XYZ 37.3 9000
14. An Dutch stock auction for issuing 300.000 shares for an corporation is shown in the
following table:
Name of Price (1000 VND per share) Auction volume (thousands of
Investors shares)
(Bidders)
A 20 80
B 19.8 100
C 19.5 50
D 19.1 120
E 19 110
F 18.5 60
Determine auction results (realized price and volume for that auction and each bidder)
15. A call auction database of XYZ shares is as following:
Buying order Price Selling orders
Investors Number of Number of Investors
shares shares
A 3500 ATO
B 2700 25.6 5000 G
C 1300 25.8 2800 H
D 4600 26 200 I
 E 4000 26.2 0
F 800 26.5 1200 K

Determine trading results (matching price and trading volume for that call auction
and for each investor)
16. Mekong Fisheries Joint Stock Company (AAM, listed on HOSE) announces its
dividend payment policy for the year 2012 as following:
Share Face value Record Date Dividend payment ratio
Code
AAM VND 10000 June 7, 2013 In cash: 30%
(Friday) In shares: 20%

Determine AAM’s market price on ex-date. Suppose that AAM’s closing-price on June
4, 2013 is
VND 44700, and the payment process of Vietnam’s stock market is T+3
17. ThangLong Invest Group (TIG, listed on HNX) discloses information related to its
share dividend payment policy as following:
- Ex-date: August 01, 2017 (Tuesday)
- Record-date: August 02, 2017 (Wednesday)
- Content: Paying dividend in shares for outstanding investors
- Dividend payment ratio: 20:1 (An investor with 20 outstanding shares receives
01 new share)
- Rounding rule: The number of new shares that investors can receive
under TIG’s share dividend payment policy are rounded down to units before
the decimal sign (for example: if the investor A, based on TIG’s policy, can
receive 111.1 shares, after rounding, he/she receive 111 shares only)
Determine TIG’s market price on the ex-date, given TIG’s closing prices on following
days:

Share code Jul. 31 Jul. 28 Jul. 27 Jul. 26 Jul. 25

TIG VND 4400 VND 4600 VND 4600 VND 4600 VND 4500
The payment process of Vietnam’s stock market is T+2
18. Van Phat Hung Corporation (VPH, listed on HOSE) releases information on their
coming issuance of share purchase rights to outstanding investors. Summary of the
company’s announcement is as below:
 - Type of shares: Common shares
- Face Value: VND 10000
- Ex-date: Oct 31, 2017 (Tuesday)
- Record-date: Nov 01, 2017 (Wednesday)
- Issuing price: VND 10000
- Issuing ratio: 5:1 (01 outstanding share is equivalent to 01 share purchase
right, and
05 share purchase right could be used to buy 01 new share under the coming
issue)
- Rounding rule: the number of new shares that investors could buy
based on their outstanding shares and rights are rounded down to
units before the decimal sign (for example: if the investor A has share
purchase rights to buy up to 24.2 share, after rounding, he/she could
buy 24 shares only)
- Registration and payment for executing rights: Nov 07, 2017 – Dec 04,
2017 a/ Determine VPH’s market price on the ex-date, and the value
of share purchase right.
Given that:
Payment process of Vietnam’s stock market is T+2
Closing price of VPH shares on Oct 30, 2017 is VND 12900 b/
Suppose that an investor A is holding 5000 VPH shares on Oct
26, 2017.
Determine (1)-the number of new shares that A could buy, (2) value of all the rights A
has, (3) -the amount of money that A has to pay VPH to execute all rights that A owns,
for each of following cases (from b.1 to b.9):
b.1. A continues to hold 5000 VPH shares until Dec 31, 2017
b.2. A sells 5000 VPH shares on Nov 08, 2017 (Wed.)
b.3. A sells 5000 VPH shares on Oct 27, 2017 (Friday)
b.4. A sells 5000 VPH shares on Oct 31, 2017 (Tue., ex-date)
b.5. A sells 5000 VPH shares on Nov 01, 2017 (Wed., Record date)
b.6. A buys 2000 VPH shares on Oct 30, 2017 (Mon.)
b.7. A buys 3000 VPH shares on Oct 31, 2017 (Tue, ex-date)
b.8. A sells 3000 VPH shares on Oct 30, 2017 (Mon.)
 b.9. A sells 5000 VPH shares on Nov 08, 2017 (Wed.) c/ Determine A’s investment
profit by Dec 29, 2017 for each of cases listed above (b.1. – b.9.), Given that:

VPH shares’ closing price on Dec 29, 2017 is VND 11250;

A sells all his VPH shares on Dec 29, 2017 with closing price;
A did not place any other buy/sell orders between Oct 26 and Dec 28, except for
orders specified in above cases (b.1 to b.9)