FIN3702A Semester 2 Mock Test 1

FIN3102A/FIN3702A Semester 2, 2019/2020 February 25, 2020 Prepared by Dr. Zhang 1. You want to purchase GM stock at $10 from your broker using as little of your own money as possible. If initial margin is 60% and you have $2400 to invest, how many shares can you buy? A. 200 shares B. 300 shares C. 400 shares D. 600 shares E. 800 shares 2. Assume you sold short 100 shares of common stock at $40 per share. The initial margin is 50%. What would be the maintenance margin if a margin call is made at a stock price of $50? A. 40% B. 20% C. 35% D. 25% E. None of the above. 3. You are evaluating two investment alternative. One is a passive market portfolio with an expected return of 8% and a standard deviation of 12%. The other is a fund that is actively managed by your broker. This fund has an expected return of 15% and a standard deviation of 16%. The risk-free rate currently is 5%. What is the maximum fee your broker could charge and still leave you as well off as if you had invested in the passive market fund? A. 4.00% B. 4.33% C. 6.00%