Richard Has an Outstanding Order with His Stock Broker to Purchase

question 55

Multiple Choice

Richard has an outstanding order with his stock broker to purchase 1,000 shares of every IPO. The next three IPOs are each priced at $30 a share and will all start trading on the same day. Richard is allocated 1,000 shares of IPO A, 400 shares of IPO B, and 100 shares of IPO C. On the first day of trading IPO A opened at $31.50 a share and ended the day at $26 a share. IPO B opened at $31 a share and finished the day at $32 a share. IPO C opened at $36.50 a share and ended the day at $40.25 a share. What is Richard's total profit or loss on these three IPOs as of the end of the first day of trading?

• A) -$2,175
• B) -$1,850
• C) -$1,500
• D) $2,250
• E) $3,500

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Definitions:

Controlling Interest

Owning a sufficient portion of equity in a company to control its management and operations through voting rights or stock ownership.

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and subsequently adjusted for the investor's share of the investee's profit or loss.

Consolidated Worksheet

A tool used in the preparation of consolidated financial statements, enabling the combining of financial information from parent and subsidiary entities.