Question

2. Tom bought 500 shares of a company’s stock for $11.06/share. He pays a broker a commission of $12 to buy and sell stock. After one year, Tom sold all his shares, when they were worth $10/share.

(a) How much did it cost Tom to buy the stock? Show your work.


(b) What was Tom’s net gain or loss? Show your work.



(c) What factors would you consider before investing in the stock market? How much money do you think you should be prepared to invest in a stock investment? Explain why you feel that way?


(d) If you were to invest in the stock market, what business would you invest in, why? Would have had the same answer a month ago? Why or why not do you feel your answer did/did not change?

Answer 1

Explanation:

a.)Buying: total cost

Total cost= commission + (price per share× Number of of shares ) ;

Total cost= 10 + (11.06×500)=$5540

b.)Net gain or loss;

First, find cash received from sale of stock and deduct commission;

Cash from sale =10×500= $ 5000

deduct commission= 5000-10= $4990

Gain or loss= sale-cost = 4990-5540 = -$550, meaning there is a loss.

c.) Annual rate of return= (net gain or loss/amount paid)×100%

return= -550/(5540)×100 = -9.92%