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#6 De 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 De's account when she first purchases the stock? Shares \$300.00 Stock Price \$40.00 Value \$12,000.00 Borrowed \$4,000.00 Cash Equity Margin \$8,000.00 Margin % 66.67% b. If the share price fal s to \$30 per share by the end of the year, what is the remaining margin in her account? If the maintenance margin requirement is 30%, wil she receive a margin cal ? Shares 300 Stock Price \$30.00 Value \$9,000.00 Borrowed \$4,000.00 Interest owed Broker \$320.00 Cash Equity Margin \$4,680.00 Margin % 52.00% MM% 30.00% Cal Not Subject to Cal c. What is the rate of return on her cash equity investment? Return on Equity-41.50% #9 You are bul ish on Telecom stock. The current market price is \$50 per share, and you have \$5,000 of your own to invest. You borrow an additional \$5,000 from your broker at an interest rate of 8% per year and invest \$10,000 in the stock. a. What wil be your rate of return if the price of Telecom stock goes up by 10% during the next year? The stock currently pays no dividends. Total investment \$10,000.00 Stock Price 50 Shares 200 Stock Price 50 Value 10,000 Borrowed 5,000 Cash Equity 5,000 Margin 50.00% Shares 200 Stock Price 55 Value 11,000 Borrowed 5,000 Interest XP 400 Cash Equity 5,600 Return on Equity 12.00% b. How far does the price of Telecom stock have to fal for you to get a margin cal if the maintenance margin is 30%? Assume the price fal happens immediately. Number of shares in excess of margin 140 Borrowed \$5,000 Price per share when Price subjecct to Cal \$35.71or lower Please visit us at www.mhhe.com/bkm #11 Suppose that Intel currently is sel ing at \$40 per share. You buy 500 shares using \$15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%.... View Full Document

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