[go: up one dir, main page]
Scribd
Upload
265 views2 pages

FTX3044F Tutorial 1

This document contains a tutorial with multiple questions related to stock trading. Question 1 asks the total cost of purchasing 1,000 shares of DRD stock available on the market. Question 2 discusses the founders of Rotocon owning shares and an IPO, asking about the founders' strategy, where Rotocon is likely listed, dividend calculations, and free float. Question 3 discusses a trader Stuart's belief that Mizhorco stock will decline, how he can profit from this, calculations for selling 1,000 Mizhorco shares given current bids and offers, Stuart's worst case scenario if his expectations are wrong, and how he can limit losses if his predictions are incorrect.

Uploaded by

vrshaf001
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
265 views2 pages

FTX3044F Tutorial 1

This document contains a tutorial with multiple questions related to stock trading. Question 1 asks the total cost of purchasing 1,000 shares of DRD stock available on the market. Question 2 discusses the founders of Rotocon owning shares and an IPO, asking about the founders' strategy, where Rotocon is likely listed, dividend calculations, and free float. Question 3 discusses a trader Stuart's belief that Mizhorco stock will decline, how he can profit from this, calculations for selling 1,000 Mizhorco shares given current bids and offers, Stuart's worst case scenario if his expectations are wrong, and how he can limit losses if his predictions are incorrect.

Uploaded by

vrshaf001
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

FTX3044F 2011 Tutorial Due: Week beginning 20 February

_____________________________________________________________ _

Question 1
According to your broker (Absa online stockbrokers) 10 000 DRD shares are available on
offer @ 500c a share and 5 000 shares are available on bid @ 490c a share. If you place
a buy order for 1 000 shares what will be the total cost of the transaction?

(5 marks)


Question 2

The founders of Rotocon own 300,000 A-class shares (each with one vote). Recently the
company had an IPO during which it issued an additional 2,000,000 N-shares (each with
0.1 of a vote). 150,000 of the 2,000,000 new shares were issued to Rotocons employee
trust.

a. In no more than a page, explain why the founders most probably followed this
strategy. Show calculations where necessary.
(4 marks)

b. Rotocon is either listed on the JSE or on a European stock exchange. Which of the
two options is more likely and why?

(1 mark)

c. If Rotocon declares a dividend of R750,000 at the end of the year, what would be the
dividend per A-share and how would this compare to the dividend per N share (show
calculations if applicable)?

(3 marks)

d. Determine Rotocons free float for both share classes.
(2 marks)

Question 3

a) Mizhorco is currently trading at R7.25. Stuart is convinced that the market does not
anticipate the significant financial trouble that he believes Mizhorco will encounter
within the next three months, and that its share is therefore significantly overvalued.
He is aware that Bigtime Insurance holds a large share position in Mizhorco.

Explain in no more than 10 lines the process Stuart can follow to turn his belief (if
things work out as anticipated) into a profit for himself. No calculations are required.

(5 marks)






b) Stuarts electronic terminal shows that the six highest current bids and six lowest
current offers for Mizhorco looks as follows:

Mizhorco Ltd
Bids Offers
Price (R/share) Number of shares Price (R/share) Number of shares
7.00 300 7.10 50
6.80 550 7.30 285
6.75 400 7.33 180
6.68 300 7.45 435
6.65 850 7.60 250
6.55 655 7.65 1025

Given that transaction costs are R80 per transaction and 2.5% on transaction value,
calculate the net amount that Stuart will pocket if he sells 1,000 shares. Show all
calculations.
(5 marks)

c) Assuming that Stuart implemented the strategy suggested in (a), but that his
expectations for Mizhorco are not realized and that the share prices moves strongly
against him.

Explain in no more than 5 lines what Stuarts worst case scenario is.
(3 marks)

d) Explain in no more than 5 lines what Stuart can do to avoid excessive loss should his
predictions for the Mizhorco share price not work out.
(2 marks)


Total: 30 marks



----0----

You might also like