Question

Sara Sanders purchased 50 shares of Apple stock at $ 190.35 per share using the prevailing minimum initial margin requirement of 56 %. She held the stock for exactly 6 months and sold it without any brokerage costs at the end of that period. During the 6​-month holding​ period, the stock paid $ 1.54 per share in cash dividends. Sara was charged 4.5 % annual interest on the margin loan. The minimum maintenance margin was 25 %.

a. Calculate the initial value of the​ transaction, the debit balance​, and the equity position on​ Sara's transaction.

b. For each of the following share​ prices, calculate the actual margin​ percentage, and indicate whether​ Sara's margin account would have excess​ equity, would be​ restricted, or would be subject to a margin​ call: ​(1) $ 174.66​, ​(2) $ 207.62​, and​ (3) $ 122.17.

c. Calculate the dollar amount of​ (1) dividends received and​(2) interest paid on the margin loan during the 6​-month holding period.

d. Use each of the following sale prices at the end of the 6​-month holding period to calculate​ Sara's annualized rate of return on the Apple stock​ transaction: ​(1) $ 184.47​, ​(2) $ 194.61​, and​ (3) $ 206.26.

Answer 1

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