Question

When it comes to position sizing, you should trade as if you have..

A) 100 shares of stock
B) 10 shares of stock
C) 1 share of stock
D) 5 shares of stock

Answer 1

In order to change the top management of Darkroom Windowshade Company, a majority vote exceeding 50,000 shares is needed. At least three investors need to vote together to achieve this threshold. Investors 1 and 2 combined do not have enough shares to always control the company's decisions.

Step-by-step explanation:

The question about the Darkroom Windowshade Company pertains to the concept of corporate governance and shareholder voting power. To change the company's top management, over 50% of the voting shares is typically required, which is called a majority vote. Therefore, by adding up the share ownership, we can determine the minimum number of investors required to reach this threshold. We have:

1. Investor 1 with 20,000 shares
2. Investor 2 with 18,000 shares
3. Investor 3 with 15,000 shares
4. Investor 4 with 10,000 shares
5. Investor 5 with 7,000 shares
6. Investors 6 through 11 with 5,000 shares each

To reach a majority, investors would need at least 50,001 shares. Investors 1 and 2 combined have 38,000 shares, which is insufficient to unilaterally decide the management's fate. They cannot be certain of always getting their way in the company because they would still need additional shareholders to reach a majority.

To achieve this majority, the minimum number of investors required, starting from the largest shareholder, would be:

• Investor 1: 20,000 shares
• Investor 2: 18,000 shares
• Investor 3: 15,000 shares (53,000 shares in total)

Only three investors would be sufficient to change the company's top management if they agree to vote together. As for investors 1 and 2, even when voting together, they can never be certain of controlling the company's outcome as they do not reach the necessary majority alone.