1. Bid-Ask Spread of Penny Stocks- Your friend just told you about a penny stock he purchased, which increased in price from $0.10 to $0.50 per share. You start investigating penny stocks and, after conducting a large amount of research, you find a stock with a quoted price of $0.05. Uponfurther investigation, you notice that the ask price for the stock is $0.08 and that the bid price is $0.01. Discuss the possible reasons for this wide bid-ask spread.
2. Buying on Margin- Assume that Vogl stock is priced at $50 per share and pays a dividend of $1 per share. An investor purchases the stock on margin, paying $30 per share and borrowing the remainder from the brokerage firm at 10 percent annualized interest. If, after one year, the stock is sold at a price of $60 per share, what is the return to the investor?