1.

Given

Number of shares = 200

initial purchase price per share = $48

Borrowed amount = $3100

Interest rate on borrowed amount = 5% = 0.05

a) Margin in Dee's account = value of the shares - borrowed amount

Substituting the above given value we get,

The value of the shares in Dee's account intially =  Number of shares*initial purchase price per share

The value of the shares in Dee's account intially = 200*48

= 9600

Margin in Dee's account = value of the shares - borrowed amount

= 9600 - 3100

= $6500

b) Remaining margin = (value of the shares after one year - amount borrowed - interest)/ value of shares

Value of the share after one year = 200*38

= 7600

amount borrowed = 3100

interest on amount borrowed@5% = 3100*(5%)

= 3100*0.05

= 155

Substituting these values in above formula, we get

Remaining margin = (7600-3100-155)/ 7600

= 4345/ 7600

= 0.5717

or 57.17%

Therefore, remaining margin = 57.17%

c) Given maintenance margin requirement = 30%

Since 57.17% is above the given maintenance margin requirement, she wont receive margin call.

Therefore answer is " No"

d) Dee initially invested 6500 (from a.) and she ends up with 4345 (7600-3100-155) at the end of the year, the rate of return is given by

rate of return = (ending equity in account - initial equity in account)/ initial equity in account

where

  ending equity in account = 4345

  initial equity in account = 6500

Substituting these we get,

rate of return = (4345 - 6500)/ 6500

rate of return = (-2155)/ 6500

rate of return = -0.3315 or -33.15

Therefore rate of return = -33.15

2.A. Since the initial margin is 87.5%, we will borrow 12.5%. Hence, it will be = 0.125 x 350 x 90 = 3937.5

B. The stock value is = 350 x 90 = 31500 = Assets = Total Liabilities & Equity. Loan from broker = 3937.5 (calculated above). Equity = 31500 - 3937.5 = 27562.5.

3.

1. Capital gains are generally included in taxable income, but in most cases, are taxed at a lower rate ...Short -term capital gains are taxed as ordinary income at rates up to 37% ;long term gains are taxed at lower rates , up to 20 %.
2. The gross estate consists of the value of all property {real or personal , tangible or intangible]owned by a decedent or in which the decedent had an interest at the time of death , I.R.C. generally ,assets are included in the gross estate at their fair market value on the date of the decedent's death.

4.please see the attached file.

5.

Difficulties for the companies which are not associated in the stock market

In P/E:

• Non-availability of a peer company or industry in the stock market. As the P-E ratio is a relative valuation technique so peers are mandatory to carry out the valuation. But if we don't find sufficient peers who are working in the same or relative industry listed in the stock market then we can't proceed.
• Negative earnings of the unlisted company. If there are negative earnings and cash flows of the unlisted company then we will get a negative price which is inaccurate and limitation of the process of valuation.
• The different capital structure of the unlisted company. If the capital structure of the company i.e. Debt-Equity ratio is very different from its peers then we cannot apply relative valuation in that company until unless we find a similar peer.

In DCF:

• Future growth prediction will be difficult if the company doesn't have any particular pattern in historical growth. If the company's historical growth rate is absurd or doesn't have any pattern then future growth rate assumptions will mislead the valuation.
• Finding a discounting rate or WACC calculation will be a challenge as extra risks are involved with the company. The discounting factor is the reflection of the risk involved in a company. So the discounting factor cannot be simply the WACC value. It has to be adjusted with the extra risk associated with the business. It will be a challenge.