Albany College of Pharmacy Uber Securities Calculation and Markets Paper (25 pts) Choose a company that has recently (in 2019) had an initial public offering of its common stock.
What company did you choose and what was your reason for choosing it? Go to yahoo finance.com and then put in the name or ticker symbol of your company. Below is what you would see if you chose Lyft, for instance. https://finance.yahoo.com/quote/LYFT?p=LYFT&.tsrc=fin-srch (Links to an external site.)
Please provide, as part of the project, a screen shot of the summary page you will see when you open the site.
Which investment banking firm served as the managing underwriter? Explain the services that a managing underwriter provides in an IPO.
What was the performance of the stock immediately after the company went public? Comment on the likely reaction to that performance by the following IPO participants: company management, investors and underwriter?
(25 pts) Suppose you plan to buy 1,000 shares in your company today.
Which market does the companys stock trade on. Chances are it will be either the NYSE or NASDAQ. What is the difference between those two markets? Speculate on why your company may have made the choice that it did.
Based on the differences between a discount firm and a full service firm, how would you decide which kind of investment firm to use.
(Extra credit: If you purchased your shares through a discount firm that made a profit based on acting as a dealer, what would be your maximum dollar cost of the transaction?)
Would you enter a market order or a limit order? (This can be an arbitrary decision.)
If you decide to purchase the stock through a market order, discuss some of the paths that the order might take to fill your order. What about the path of a limit order?
What are the main kinds of limit orders and what purpose do they serve for the investor?
(Extra credit: From your textbook and/or other sources, describe what dark pools and ECNs are and who uses them.)
(20 pts) Suppose you have a great deal of confidence that the 1,000 shares you want to buy are selling at a real bargain price and you would like to purchase more than 1,000 shares by using a margin account. Assume the call rate is 5% and the Fed has established 50% as the maximum about you can borrow against the stock.
Using the current price of the stock, what will be your annualized return on a 1,000 share investment if the stock goes up in price by 20%, at which time you sell it. What will that return be if the stock goes down by 20% in two months and you sell it then?
Given the facts above, what will be your annualized return if you purchase twice the number of shares by borrowing with a 50% margin. (Make the calculations using the two assumptions in a. above)
(15 pts) Suppose you have the opposite view and you think that the shares will fall in value and that you can make money by entering into a short sale using current prices.
What will be your profit if you are correct and the price of the stock falls by 30% in the next two months, at which time you close out your short position.
What will be your loss if you are wrong and the price of the stock increases by 30?
(Extra credit: Is there a limit to the amount of money you can lose if you guess wrong in a short sale. Explain.)
(15 pts) Go to the Yahoo Finance summary page and select Options in the top bar.
Select a call option expiring in November allowing exercise at a price slightly higher than todays price. If the price of the stock goes substantially above the exercise price, will you make a profit? Give an example to illustrate the amount of profit you could make. What will be your profit if the price of the stock does not go above the exercise price prior to expiration
Now select a put option expiring in November. Give an example to illustrate how much money you could make if the price of the stock goes well below the exercise price. What will be your profit if the price of the stock does not go below the exercise price prior to expiration
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