Margin Transactions

Margin Transactions - 4-1Margin TransactionsOn any type...

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Unformatted text preview: 4-1Margin TransactionsOn any type order, instead of paying 100% cash, investors can borrow a portion of the transaction and use the stock as collateralInterest rate on the money borrowed is normally 1.50% above the bank rate, referred to as the call money rate. Changes in stock price change the total market value of the stock bought and 4-2Exhibit 4.84-3Margin TransactionsMargin RequirementThe initial margin requirement is set by the Federal Reserve at 50%, although individual investment firms can require higher percentsMaintenance MarginRequired proportion of equity to stock after purchaseProtects broker if stock price declinesMinimum requirement is 25%Margin call on undermargined account to meet margin requirement4-4Margin TransactionsSuppose you bought 200 shares of a $50 stock and borrowed the maximum amount of money given an initial margin requirement of 50%. If the stock price increase to $60 per share, what will be your equity position in the stock?position in the stock?...
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This note was uploaded on 01/24/2012 for the course FIN 4360 taught by Professor Davidbray during the Spring '12 term at Kennesaw.

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Margin Transactions - 4-1Margin TransactionsOn any type...

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