Page 144 - CalcBus_Flipbook

18-8 Securities: Stocks & Bonds CH 18]

Solution algorithm:
Price/share + odd lot differential = odd lot price per share
1. $109.45 + $0.125 = $109.575 odd lot price per share
Odd lot price per share x no. of shares = trade value of transaction
2. $109.575 x 85 = $9,313.88 trade value of transaction Round to dollars & cents
Trade value of transactions + commission = total cost of order
3. $9,313.88 + $139.55 = $9,453.43 total cost of order

Total Cost for round lot and odd lot combination orders. There are stock purchases
that include round lot and odd lot orders. When computing the trade value of this kind of
transaction the order is treated as two separate transactions: round lot and odd lot. The
trade value for an odd lot transaction is calculated separately because of the odd lot
differential.
To calculate the total cost of a combination order:
1. Calculate the trade value of the round lot portion of the order.
2. Calculate the trade value of the odd lot portion of the order.
3. Add together the trade values of the round lot and odd lot with the
commission charged for the transaction.
Example: An investor bought 535 shares of Cooper Tire & Rubber Co. (CBT) stock.
The purchase price is $30.10 per share plus commissions totaling
$316.80. Calculate the total cost for this order.
Solution algorithm:
Round lot Price/share x no. of Shares = Trade Value
1. $30.10 x 500 = $15,050.00 trade value of 500 shares – round lot
——————————————————————————————————————
Price/share + Odd lot differential = Odd lot Price per Share
2. $30.10 + $0.125 = $30.225 odd lot price per share
Odd lot price/share x no. of shares = Trade value of odd lot shares
$30.225 x 35 = $1,057.88 trade value of 35 shares – odd lot Round to dollars & cents
——————————————————————————————————————-
Trade value Round Lot + Trade Value Odd lot + Commission = Total Cost
3. $15,050.00 + $1,057.88 + $316.80 = $16,424.68 total cost
Selling Stock
Selling stock is the same as buying stock, and the premise remains the same, “buy low
and sell high”. It is not a good idea to speculate in the stock market unless you can afford to
lose your investment. There exists no methodical algorithm to determine exactly when the
price of a stock will be at its highest or lowest point. Similarly, one should not buy stock
shares and forget about them. Successful investing requires the investor to pay attention to
the securities market and reports on businesses to decide when to buy or sell. Stock
companies pay dividends to owners from the net profit of the company, a source of income
for the investor. When the investor sells all or part of their stocks in a firm, the difference in
the selling price and the purchase price is their capital gains or losses which can have tax
liabilities for the investor. Of course, the desired result from a sale is to sell the stock at a
higher price than they paid for it, which results in capital gains, a profit added to dividends
received. From another point, the investor may decide to sell because the stock/firm hasn’t
performed to the investors’ expectations in either dividends or market share growth, or the
investor has decided to take a different direction and put his capital into another company or
industry.
The selling costs associated with each sale differs with each brokerage house as they are
competing with other brokerage firms for customers. Examples of calculating these costs will
be discussed below.
The process of selling a stock is similar to buying one. The objective with selling a stock
is to either increase profit, preserve profit, or limit losses and limit the costs of the sale. On
the sale, the main objective is to limit losses and maximize returns.

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