Fin 3020 chap 3 margin short

FIN 3020 Chap 3 Margin Short
Download Document
Showing pages : 1 - 2 of 2
This preview has blurred sections. Sign up to view the full version! View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: #6 Dée 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 Dée'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 $35.71 or lower Please visit us at #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