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ms 1. You purchase 100 shares for $50 a share ($5,000), and after a year the price rises to $60. What will be the percentage return on your investment if you bought the stock on margin and the margin requirement was (a) 25 percent, (b) 50 percent, and (c) 75 percent? (Ignore commissions, dividends, and interest expense.) 2. Repeat Problem 1 to determine the percentage return on your investment, but in this case suppose the price of the stock falls to $40 per share. What general- ization can be inferred from your answers to Problems 1 and 2? 3. A stock is currently selling for $45 a share. What is the gain or loss on the fol- lowing transactions? a. You take a long position and the stock's price declines to $41.50. b. You sell the stock short and the price declines to $41.50. c. You take a long position and the price rises to $54. d. You sell the stock short and the price rises to $54. 4. A sophisticated investor, B. Graham, sold 500 shares short of Amwell, Inc. at $42 a share. The price of the stock subsequently fell to $38 before rising to $49 at which time Graham covered the position (that is, closed the short position). What was the percentage gain or loss on this investment? 5. A year ago, Kim Altman purchased 200 shares of BLK, Inc. for $25.50 on mar- gin. At that time the margin requirement was 40 percent. If the interest rate on borrowed funds was 9 percent and she sold the stock for $34, what is the per- centage return on the funds she invested in the stock

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