Question

If Tim does not buy DEF, how much can he spend on ABC?

Answer 1

Given that 100 shares of ABC costs $425 and 100 shares of DEF costs $600 with a $375 commission.

Part A:

If Tim does not buy DEF, then he has $425 + $600 + $375 = $1,400 to spend on ABC.

Therefore, Tim has $1,400 to spend on ABC if he does not buy DEF.


Part B:

Given that 100 shares of ABC costs $425, then 1 share of ABC costs $425 / 100 = $4.25.

From part A, we have that Tim has $1,400 to spend on ABC if he does not buy DEF.

Thus, If Tim does not buy DEF, he can buy $1,400 / $4.25 = 329.4 shares of ABC.

Therefore, Tim  can buy 329.4 shares of ABC if he does not buy DEF.



Part C:

Given that Tim spent $1,400 to buy shares of ABC when he did not buy DEF.

If the selling price is $2,100, Tim will have earned $2,100 - $1,400 = $700 by investing if he did not buy DEF

Therefore, If the selling price is $2,100, Tim will have earned $700 by investing if he did not buy DEF.



Part D:

Given that the selling price is $2,100 and the cost price is $1,400, then the cash to Tim divided by the total cost, if he did not buy DEF is given by $2,100 / $1,400 = 1.5 = 150%

Therefore, the cash to Tim divided by the total cost in this example to the (nearest 1%), if he did not buy DEF is 150%