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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
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#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%.
a.

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