PART I Introduction       WEBSITES http://www.spglobal.com   The above site contains information on construction of Standard & Poors Indexes and has links to most major exchanges.         PROBLEMS 1. FBN, Inc., has just sold 100,000 shares in an initial public offering. The underwriters explicit fees were $70,000. The offering price for the shares was $50, but immediately upon issue the share price jumped to $53. a. What is your best guess as to the total cost to FBN of the equity issue? b. Is the entire cost of the underwriting a source of profit to the underwriters? 2. Suppose that you sell short 100 shares of IBX, now selling at $70 per share. a. What is your maximum possible loss? b. What happens to the maximum loss if you simultaneously place a stop-buy order at $78? 3. Dée Trader opens a brokerage account, and purchases 300 shares of Internet Dreams at $40 per share. She borrows $4,000 from her broker to help pay for the purchase. The interest rate on the loan is 8%. a. What is the margin in Dées account when she first purchases the stock? b. If the price falls to $30 per share by the end of the year, what is the remaining mar- gin in her account? If the maintenance margin requirement is 30%, will she receive a margin call? c. What is the rate of return on her investment? 4. Old Economy Traders opened an account to short sell 1,000 shares of Internet Dreams from the previous problem. The initial margin requirement was 50%. (The margin ac- count pays no interest.) A year later, the price of Internet Dreams has risen from $40 to $50, and the stock has paid a dividend of $2 per share. a. What is the remaining margin in the account? b. If the maintenance margin requirement is 30%, will Old Economy receive a margin call? c. What is the rate of return on the investment? 5. An expiring put will be exercised and the stock will be sold if the stock price is below the exercise price. A stop-loss order causes a stock sale when the stock price falls be- low some limit. Compare and contrast the two strategies of purchasing put options ver- sus issuing a stop-loss order. 6. Compare call options and stop-buy orders. 7. Here is some price information on Marriott: