Suppose you short-sell 100 shares of IBM,

Suppose you short-sell 100 shares of IBM,

12. Suppose you short-sell 100 shares of IBM, now selling at $200 per share. (LO 3-4)
a. What is your maximum possible loss?
b. What happens to the maximum loss if you simultaneously place a stop-buy order at $210?

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14. DRK, Inc., has just sold 100,000 shares in an initial public offering. The underwriter’s
explicit fees were $60,000. The offering price for the shares was $40, but immediately
upon issue, the share price jumped to $44.

a. What is your best guess as to the total cost to DRK of the equity issue?
b. Is the entire cost of the underwriting a source of profit to the underwriters?

15. Dée 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%. (LO 3-4)

a. What is the margin in Dée’s account when she first purchases the stock?
b. If the share 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?

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