Financial Market Question

Lauren has a margin account and deposits $50,000. Assume the prevailing margin requirement is 40 percent, commissions are ignored, and the gentry Shoe Corporation is selling at $35 per share.

a. How many shares can Lauren purchase using the maximum allowable margin?                        b. What is Lauren’s profit (loss) if the price of Gentry’s stock:

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  1. rises to $45?
  2. Falls to $25?

Compute the abnormal rates of return for the five stocks in Problem above assuming the following systematic risk measures (betas):

StockBi

B0.95

F1.25

T1.45

C0.70

E-0.30