Answer:
$1,700
Explanation:
Although the minimum equity to open a long margin account is $2,000. However, this does not apply if the securities in the account are paid fully.
It will amount to potential loss if a customer is asked to deposit more than 100% when buying. Since the customer wants to buy 1,700 of stock, it means that 100% or $1,700 (100 shares × $17) must be deposited.
Answer:
14.05%
Explanation:
Given that,
Beta = 1.3
Risk-free rate (Rf) = 9.5%
Return on the Market (RM) = 13%
According to CAPM approach:
Cost of common equity (RE):
= [Rf + β (RM – Rf)]
= [9.5% + 1.3 (13% - 9.5%)]
= [9.5% + 1.3 (3.5%)]
= [0.095 + 1.3 (0.035)]
= [0.095 + 0.0455]
= 0.1405
= 14.05%
Therefore, the firm's cost of common equity is 14.05%.
Answer:
The bond that should pay the highest interest rate is:
d. a bond issued by a new restaurant chain.
Explanation:
This is based on the fact that the new restaurant chain is untested, has higher risk profile and the bondholders are assuming higher risks, and the bond cannot be compared to the bonds issued by the US government, New York State, and General Motors, in that order. The new restaurant chain will be offering a higher rate of return than others because it is new to the bond market and would like to attract potential bond investors. Without the higher rate, therefore, it will not be successful in the bond issuance.
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