1. Johnny Appleseed purchases 500 shares of Musselman Applesauce stock for $27.5
ID: 2620002 • Letter: 1
Question
1. Johnny Appleseed purchases 500 shares of Musselman Applesauce stock for $27.50 per share, par value. On the purchase, he pays a flat fee commission of $29.95.
a.) What is his total cost for the stock purchase?
b.) After two years, he decides to sell all of his stock for $32.19 per share. His broker has since changed his commission rate and now charges him a rate of 5% of the selling price of the stock. What is the broker’s commission and what are Johnny’s proceeds from the sale of the stock?
c.). Did the sale result in a net gain to net loss for Johnny? How much of a gain or loss?
Explanation / Answer
a.) What is his total cost for the stock purchase?
Answer a) Total Cost of the stock purchased
= (Number of shares * Price) + Commission Paid
= (500*$27.5) + $29.95
= $ 13,779.95
b.) After two years, he decides to sell all of his stock for $32.19 per share. His broker has since changed his commission rate and now charges him a rate of 5% of the selling price of the stock. What is the broker’s commission and what are Johnny’s proceeds from the sale of the stock?
Answer b) Broker’s Commission on sale of stock
= (Selling Price * 5% ) * Number of shares
= ( $ 32.19 * 5%) * 500
= $ 804.75
Sale Proceeds to Johnny
= (Selling Price * Number of shares) – Commission paid on sale of stock
= ( $ 32.19 * 500 ) – 804.75
= $ 15290.25
c.). Did the sale result in a net gain or net loss for Johnny? How much of a gain or loss?
Answer c) The sale of stock results in net gain to Johnny as the sale proceeds are higher than the total cost of purchase.
Net Gain = Sale proceeds – Total Cost of Purchase
Net Gain = $ 15,290.25 - $ 13,779.95
Net Gain = $ 1,510.30
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.