Bob Orleans invested $5,000 and borrowed $5,000 to purchase shares in Verizon Communications. At the time of his investment, Verizon was selling for $10 a share. a. If Bob paid a commission of $50, how many shares could he buy if he used only his own money and did not use margin? Number of shares b.if Bob paid a commission of $100, how many shares could he buy if he used his $5,000 and borrowed $5,000 on margin to buy Verizon stock? Number of shares c. Assume Bob did use margin and paid a commission of $100 to buy his Verizon stock. Also, assume he paid another $100 to sell his stock and sold the stock for $17 a share. How much profit did he make on his Verizon stock investment? (Use the rounded number of shares computed in part b. Round your answer to 2 decimal places.) Profit



Answer :

No of shares he can buy is 248 if Bob Orleans invested $5,000 and borrowed $5,000 to purchase shares in Verizon Communications.

No of shares he can buy = (Own money - Comission) / Selling price = (5000 - 40) / 20  = 4960/20

No of shares he can buy=248

B)

No of shares he can buy with borrowed and own money= (Own money + Borrowed Money - Comission) / Selling price = (5000 + 5000- 80) / 20  = 9920/20

No of shares he can buy=496

C)

Profit = (Selling price - Purchase price ) * No of shares bought with borrowed and own money - ( Commission at purchase + Commission at sell)

=(26-20)

*496 - (80+80)

= 6*496 - 160

=2976 - 160

No of shares he can buy=2816

A buyer actually pays the selling price when purchasing a good or service. It is a price that is higher than the cost price and also includes a profit margin. Setting a selling price is a delicate topic because it heavily influences how many units of a product are sold.

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