# what is your percentage loss if you pay cash for the asset?

Part One: Index Values

You have been considering investing in one or more stocks listed in the Calvin Index. The following is a list of companies in the index and their relevant information:

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Company Number of Shares Outstanding Market Price on January 1, 2009 Current Market Price on December 31, 2011 Czar 1,000 \$1.50

\$10.00

Beetls 3,000 \$3.00

\$11.00

Warf 5,000 \$4.50

\$18.00

Novit 4,000 \$6.00

\$3.50

Jems 1,500 \$10.00

\$35.00

Required: 1.Assuming there have been no stock splits during the above-noted time period, what is the value of the Calvin Index on December 31, 2011 if the index is price weighted? 2.If a value-weighted approach is used, what would be the value of the Index? 3.Describe how these index values could be used by investors.

You are considering the purchase of 500 shares of stock in an electronics firm, X, Inc., which is currently selling for \$40 per share. You could pay cash for the stock, but you could also buy the stock on margin of 35%. Because of the possible gains, buying on margin is attractive. However, you are also concerned with the possible losses if the value of the stock declines.

Required: 1.If the value of the stock increases to \$50 per share, what is your percentage gain if you pay cash for the asset? What is your percentage gain if you purchase the stock with a margin of 35%? 2.If the value of the stock decreases to \$25 per share, what is your percentage loss if you pay cash for the asset? What is your percentage loss if you purchase the stock with a margin of 35%? 3.Based on this information, describe the risks and benefits involved in making an investment on margin as compared to using cash.

Use good form, show all your calculations and conclusions.

Company Number of Shares Outstanding Market Price on January 1, 2009 Current Market Price on December 31, 2011
Czar 1,000 \$1.50 \$10.00
Beetls 3,000 \$3.00 \$11.00
Warf 5,000 \$4.50 \$18.00
Novit 4,000 \$6.00 \$3.50
Jems 1,500 \$10.00 \$35.00

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