In practice except for when price-weighting, when we construct an index, we should set the index level to:

Investors can never have a return lower than -100%.

Suppose that you just short sold 100 shares of ABC stock for $50 per share. The initial margin requirement is 60%, which you cover by pledging T-bills as collateral. If the price of the stock falls to $41 per share, what return did you earn? Ignore the interest earned on T-bills.

Challenge The national order book for shares of ABC Corp. is: National Order Book Asks /Limit Sell Orders       Price Shares Dealer Ask $127 6,000   $126 1,500   $125 1,200   $124 300 Best Ask $123 120         Bids /Limit Buy Orders   Price Shares Best Bid $121 25   $120 63   $119 250   $118 313 Dealer Bid $117 1,250       Suppose a market order to sell 500 shares arrives from a fund manager. At what weighted-average price will this order be filled? (note: this spreads are unrealistically large. In reality, they would be $0.01) Enter your answer as a number of dollars, rounded to the nearest $0.01.

Consider an initial public offering of 40 million shares. The offer price is $70 per share with an underwriting fee of 2.0 percent of the total raised. Suppose the price of the stock jumped to $80 per share during its initial trading in the market. How much money did the issuing corporation leave on the table?

What role do money market securities play in a fund’s portfolio?

You bought 35 shares of a $70 stock on margin one year ago. Today, the stock is worth $79 per share. You initially posted 75% margin. Ignoring any interest due and margin calls, calculate your rate of return.

A market maker purchases financial securities as part of an SEO. Where did this transaction take place?

Challenge The national order book for shares of ABC Corp. is: National Order Book Asks /Limit Sell Orders       Price Shares Dealer Ask $112 2,400   $111 600   $110 480   $109 120 Best Ask $108 48         Bids /Limit Buy Orders   Price Shares Best Bid $106 10   $105 25   $104 100   $103 125 Dealer Bid $102 500       Suppose a market order to sell 200 shares arrives from a fund manager. At what weighted-average price will this order be filled? (note: this spreads are unrealistically large. In reality, they would be $0.01) Enter your answer as a number of dollars, rounded to the nearest $0.01.

Suppose that you just short sold 100 shares of ABC stock for $80 per share. The initial margin requirement is 60%, which you cover by pledging T-bills as collateral. If the price of the stock falls to $67 per share, what return did you earn? Ignore the interest earned on T-bills.