Examine the balance sheet of commercial banks in Table 1.3. What is the ratio of real assets to total assets? What is that ratio for nonfinancial firms (Table 1.4)? Why should this difference be expected?
The ratio of real to total assets = 0.01291
The ratio of non-financial firms =0.4845
Land, buildings usually owned by or leased to companies for carrying out operations are called real assets. The sum of such assets by an individual or a company is known as total asset.
For commercial banks
From the table 1.3:
Total tangible (real) assets of the commercial banks = $157 billion and
Total assets = $12157.3 billion.
So the ratio of real assets to total assets= Real Assets/ Total Assets
Thus, the ratio is 0.01291.
For non-financial firms:
From the table 1.4:
Total tangible (real) assets of the commercial banks = $13,661 billion and
Total assets = $28,196 billion.
So the ratio of real assets to total assets of non-financial firms = Real Assets/ Total Assets
The apparent reason for this difference can be found out in the nature of business of the financial firms who offer loans that are financial assets.
You are bearish on Telecom and decide to sell short 100 shares at the current market price of $50 per share.
a. How much in cash or securities must you put into your brokerage account if the broker’s initial margin requirement is 50% of the value of the short position?
b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position?
Both a call and a put currently are traded on stock XYZ; both have strike prices of $50 and maturities of six months. What will be the profit to an investor who buys the call for $4 in the following scenarios for stock prices in six months?
( a ) $40; ( b ) $45; ( c ) $50; ( d ) $55; ( e ) $60.
What will be the profit in each scenario to an investor who buys the put for $6??
Consider the following limit order book for a share of stock. The last trade in the stock occurred at a price of $50.
a. If a market buy order for 100 shares comes in, at what price will it be filled?
b. At what price would the next market buy order be filled?
c. If you were a security dealer, would you want to increase or decrease your inventory of this stock?
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