ESSAY HELP | If the value of the stock increases to $50 per share, what is your percentage gain 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:

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

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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.

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Part Two: Buying on Margin

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.

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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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