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The Federal Reserve Regulation T (Reg T) mandates that the initial margin of a transaction is at least 50%.

The Federal Reserve Regulation T (Reg T) mandates that the initial margin of a transaction is at least 50%.

Suppose you buy 20 shares of GOOG at $800 borrowing the maximum allowable amount from your broker.


1.    What is the market value balance sheet at the beginning of the transaction?

Assets Liabilities + Equity

L =  

E =


2.1.    Suppose GOOG falls 25% one year after you bought it. What is the market value balance sheet of the transaction after one year? Assume the broker loan accrues interest at 1%.             


Assets Liabilities + Equity

L =

E =

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