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Fred Jury Is a Portfolio Manager Who Has $1,200,000 of a Client's

question 95

Essay

Fred Jury is a portfolio manager who has $1,200,000 of a client's money to invest in highly speculative instruments.Jury is contemplating the purchase of 40,000 shares of Shakee Corp.common stock,which is currently selling on the TransCanada Stock Exchange at $30.00 per share.Alternatively,he could buy warrants on Shakee Corp.common for $6.60.Each warrant gives the holder the right to buy one share of Shakee Corp.common stock at $27.00 per share.
A)How many warrants could Mr.Jury buy with the $1,200,000?
B)If he had purchased the common stock directly,and its price had increased to $37.20 per share,calculate his dollar and percentage return on the investment.
C)Assume that when the price of the stock goes to $37.20 per share,the warrant sells for its intrinsic value.If Jury sells his warrants at this point,calculate his dollar and percentage return on the investment.

Definitions:

Elaboration

In learning and memory, a process involving the addition of details or expansion on an item of information.

Deepest Processing

Refers to the most effective level of information processing, which involves meaningful analysis and associations, leading to better memory and understanding.

Effortful Processing

A type of information processing that requires attention and conscious effort to encode or remember information.

Cocktail Party Effect

The ability to focus one's auditory attention on a particular stimulus while filtering out a range of other stimuli.