FIN 3005 FIN3005 Week 6 Individual Work 1 (Everest University)

FIN3005 Week 6 Individual Work 1 (Everest University)

QUESTIONS AND APPLICATIONS

3. Short Selling:   Under what conditions might investors consider short selling a specific stock?

7.  SEC Structure and Role:   Briefly describe the structure and role of the Securities and Exchange Commission (SEC).

13. Bid–Ask Spread of Penny Stocks: Your friend just told you about a penny stock he purchased, which increased in price from $0.10 to $0.50 per share. You start investigating penny stocks and, after conducting a large amount of research, you find a stock with a quoted price of $0.05. Upon further investigation, you notice that the ask price for the stock is $0.08 and that the bid price is $0.01. Discuss the possible reasons for this wide bid-ask spread.

14. Ban on Short Selling: Why did the SEC impose a temporary ban on short sales of specific stocks in 2008? Do you think a ban on short selling is effective?

PROBLEMS

1.  Buying on Margin: Assume that Vogl stock is priced at $50 per share and pays a dividend of $1 per share. An investor purchases the stock on margin, paying $30 per share and borrowing the remainder from the brokerage firm at 10 percent annualized interest. If, after one year, the stock is sold at a price of $60 per share, what is the return to the investors?