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Chapter 1: Problem 7

General Motors stock fell from \(\$ 32\) per share in 2006 to \(\$ 20\) per share during 2008 . a. If you bought and then sold 300 shares at these prices, what was your loss? b. Express your loss as a percent of the purchase price. Round to the nearest tenth of a percent.

Short Answer

Expert verified
a. The loss incurred was \$3600. b. The loss as a percent of the purchase price is approximately 37.5%.

Step by step solution

01

Calculate the Loss per Share

Firstly, calculate the loss per share by subtracting the selling price from the purchase price, which is \( \$32 - \$20 = \$12 \) per share.
02

Calculate Total Loss

Next, find out the total loss by multiplying the loss per share with the total number of shares bought and sold. So, \( \$12 * 300 = \$3600 \).
03

Calculate Loss Percent

Finally, to calculate the loss as a percent of the purchase price, divide the total loss by the total purchase amount (which is the unit price times the number of units bought), then multiply by 100. The formula is \(\frac{\text{Total Loss}}{\text{Total Purchase Amount}} * 100\). Here, the total purchase amount is \( \$32 * 300 = \$9600\). Therefore, the loss percent is \(\frac{\$3600}{\$9600} * 100 = 37.5\%\).

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Financial Algebra
Financial algebra involves the use of mathematical techniques and formulas to solve real-world financial problems. Unlike basic arithmetic, financial algebra incorporates elements of business and finance to provide insights into the economic implications of numerical values. It plays a key role in understanding stock market calculations and personal finance.

In the case of stock transactions, understanding financial algebra allows you to calculate profit or loss when buying and selling stocks. You need to comprehend the initial stock price, the selling price, and the number of shares involved. Using these, you can calculate the overall gain or loss from the transaction. This type of arithmetic helps investors make informed decisions by accurately quantifying financial changes and understanding market trends.
Percentage Loss
The percentage loss gives context to a financial loss by relating it to the initial investment. It's calculated by taking the loss amount and dividing it by the original investment, then multiplying by 100 to convert it into a percentage.

Here's how it works. If you initially invested in an asset, such as stocks, and they decreased in value, you can determine how much was lost relative to how much you spent. For instance, if you bought stock for $32 per share and it decreased to $20 per share, calculating the percentage loss helps assess the decline's impact on your portfolio.

This calculation is critical because a loss recorded only as a currency amount does not show its economic significance relative to the total investment. In a financial context, knowing the percentage loss helps evaluate investment performance and make strategic decisions moving forward.
Stock Price Changes
Stock price changes refer to the fluctuations in the price of a company's shares over time. These changes occur due to numerous factors, including market conditions, company performance, and investor sentiment. Understanding stock price movements is crucial for investors as it directly affects their potential returns or losses.

When a stock price falls from its original value, as demonstrated in the exercise, it's important to calculate the price difference and determine its impact on your investment.

Stocks might decrease due to negative news about the company or broader economic downturns, which can lead to a significant financial impact on an investor's portfolio. Keeping a close eye on these changes can help investors decide when to buy or sell stocks, aiming to maximize profits or minimize losses. A change in stock price, such as from $32 to $20 per share, should be evaluated not only on the dollar loss but on the financial implications and potential opportunities it presents.

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Most popular questions from this chapter

For Exercises \(12-15\) , round answers to the nearest tenth of a percent. The Revreg Corporation pays an annual dividend of \(\$ 1.60\) per share. On Friday it closed at \(\$ 44\) per share with a net change of \(+0.35 .\) The dividend did not change. a. What was the yield on Friday? b. At what price did Revreg close on Thursday? c. What was the yield at Thursday's close? d. Thursday's net change was + \(1.22 .\) At what price did Reverg close on Wednesday?

Use the spreadsheet below to answer Exercises 12鈥�16. $$\begin{array}{|c|c|c|c|c|c|c|c|c|}\hline { } & {\text { A }} & \text{ B } & \text{ C } & \text{ D } & \text{ E } & {\text { F }} & \text{ G } & \text{ H } \\\ \hline {}&{}&{}&{ \text{April } 25}&{}&{}&{\text{April } 24}&\text{Volume in}&\text{Volume in} \\ 1 & \text { Symbol } & {\text { Stock }} & \text { Last } & \text { Change } & \text { % Change } & \text { Close } & {1,000 \text{s}} & {100 \text{s}} \\ \hline 2 & \text { AAPL } & {\text { Apple Inc }} & {169.73} & { 0.79 } & {} & {168.94} & {35,445} & {} \\ \hline 3 & \text { BBW } & {\text { Build-A-Bear }} & {10.15} & {1.15} & {12.78} \text {%} & {} & {616} & {} \\ {} & {} & {\text { Workshop Inc }} & {} & {} & {} & {} & {} & {} \\ \hline 4 & \text { CTB } & {\text { Cooper Tire & }} & {14.7} & {?1.82} & {} & {16.52} & {2,671} & {} \\ {} & {} & {\text { Rubber Co }} & {} & {} & {} & {} & {} & {} \\ \hline 5 & \text { F } & {\text { Ford Motor Co }} & {7.5} & {?0.9} & {} & {} & {227,269} & {} \\ \hline 6 & \text { INTC } & {\text { Intel Corp }} & {22.56} & {} & {?0.57 \text {%}} & {} & {47,604} & {} \\\ \hline 7 & \text { MSFT } & {\text { Microsoft Corp }} & {29.83} & {} & {?6.19 \text {%}} & {31.80} & {145,194} & {} \\ \hline 8 & \text { NTGR } & {\text { NETGEAR Inc }} & {16.76} & {?3.37} & {?16.74 \text {%}} & {} & {8,085} & {} \\ \hline 9 & \text { YHOO } & {\text { Yahoo! Inc }} & {26.8} & {} & {?1.83 \text {%}} & {} & {50,523} & {} \\ \hline \end{array}$$ Write a formula that will convert the volume given in 1,000s into a volume given in 100s. Use the left side of the equation to indicate in which cell to store the formula. a. Intel Corp \(\quad\) b. Yahoo! Inc

Why might the buyer and seller of the same stock both think that their trading price was an 鈥渁stute鈥� decision? How might those words apply to what you have learned?

Laura bought 55 shares of stock for \(\$ 3.50\) per share last year. She paid her broker a 1\(\%\) commission. She sold the stock this week for \(\$ 2\) per share, and paid her broker a \(\$ 10\) flat fee. a. What were Laura's net proceeds? Round to the nearest cent. b. What was her capital gain or loss?

Use the following ticker information to answer Exercises 2鈥�9. The stock symbols represent the following corporations: HD, Home Depot Inc; S, Sprint Nextel Corporation; VZ, Verizon Communications Inc; and XOM, Exxon Mobil Corp. HD 32.3M@29.13?1.13 S 1.1K@9.14?0.78 VZ 3.32K@38.77?2.27 XOM 0.66K@92.67?1.58 How many shares of Home Depot are indicated on the ticker?
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