Question

In: Finance

You purchased 800 shares of stock for $49.20 a share. The initial margin requirement is 65...

You purchased 800 shares of stock for $49.20 a share. The initial margin requirement is 65 percent and the maintenance margin is 35 percent. What is the lowest the stock price can go before you receive a margin call?

What is the lowest the stock price can go before you receive a margin call if both the initial and maintenance margins are 100%?

What is the lowest the stock price can go before you receive a margin call if both the initial and maintenance margins are 0%?

please show your work

Solutions

Expert Solution

a) We are given the following information:

Initial Margin 65%
Maintenance Margin 35%
Purchase price of stock $                        49.20

b) We are given the following information:

Initial Margin 100%
Maintenance Margin 100%
Purchase price of stock $                        49.20

As the maintenance margin = 100% the denominator will become 0 and division by 0 is undefined. But financially it can be said that there is no margin call price, i.e. investor has not borrowed anything so there is no margin call price.

c)

a) We are given the following information:

Initial Margin 100%
Maintenance Margin 100%
Purchase price of stock $                        49.20

Financially it is said the entire amount of 49.20 per share needs to be invested all the time as the entire money is borrowed.


Related Solutions

You purchased 250 shares of common stock on margin for $45 per share. The initial margin...
You purchased 250 shares of common stock on margin for $45 per share. The initial margin is 60%, and the stock pays no dividend. Your rate of return would be ________ if you sell the stock at $48 per share. Ignore interest on margin. 0.132 0.238 0.111 0.208
You purchased 100 shares of common stock on margin for $150 per share. The initial margin...
You purchased 100 shares of common stock on margin for $150 per share. The initial margin requirement is 65%, the maintenance margin requirement is 40%. Find your rate of return in % if you sell the stock at $180 per share exactly 1 year later if interest rate on margin loan is 10%
An investor purchased 200 shares of stock at $100 per share on 65% margin. Suppose the...
An investor purchased 200 shares of stock at $100 per share on 65% margin. Suppose the maintance margin is 40% at what price does the investor get a margin call? Regarding the previous question, if the price declines to $70 per share whats the return to the investors equity? What if the stock price rises to $150 per share? ignore interest and transaction costs.
You purchased 1000 shares of Dell stock on margin at $70 per share. Assume the initial...
You purchased 1000 shares of Dell stock on margin at $70 per share. Assume the initial margin is 50% and the maintenance margin is 40%. Assume the stock pays no dividends, and ignore interest on the margin loan. a.What is the rate of return on his investment if the price rises to $85 per share? b.What is the margin if Stock price falls to $60 per share, will the investor receive a margin call ? c.How far can the stock...
You short sold 400 shares of a stock at $51 a share. The initial margin is...
You short sold 400 shares of a stock at $51 a share. The initial margin is 50% and the maintenance margin is 25%. What is the amount of your liability for this transaction as initially shown on your account balance sheet? Select one: a. $7,650 b. $5,100 c. $15,300 d. $10,200 e. $20,400 The answer is d or e? what does it mean initial transaction? The first transaction that is shown on the Liability and Equity?
The initial margin requirement on a stock purchase is 45.7%. If you fully use your initial...
The initial margin requirement on a stock purchase is 45.7%. If you fully use your initial margin to purchase 348 shares of Facebook at $266, What is the minimum dollar amount you will need to initiate this transaction (your equity in the investment)? Enter your answer in the box below and round to two decimals.
A hedge fund manager shorted 800 shares of XYZ stock at $65/share and she plans to...
A hedge fund manager shorted 800 shares of XYZ stock at $65/share and she plans to close out her short position in nine months. She decides to put options to fully hedge her short sale against price risk. 9-month XYZ put options have a strike price and premium of $60 and $.15, respectively. Find her total profit/loss (stock and options combined) if XYZ sells for $59 when the options expire. -4120 4120 4920 -4920 Find the manager's total profit/loss (shares...
1) Assume you buy 100 shares of stock at $40 per share on margin. The initial...
1) Assume you buy 100 shares of stock at $40 per share on margin. The initial margin is 50%. If the price rises to $55 per share, what is your percentage gain on the initial equity?
You purchased 100 shares of IBM common stock on margin at $151 per share. Assume the...
You purchased 100 shares of IBM common stock on margin at $151 per share. Assume the initial margin is 50%, and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin. Round your answer to the nearest cent (2 decimal places).
An investor shorts 100 shares of a stock at $52 per share with initial margin of...
An investor shorts 100 shares of a stock at $52 per share with initial margin of 50% and no interest. The maintenance margin is 30%. Suppose the closing prices for the stock over the next three days is $56, $60 and $58. What are the values for margin and equity in the investor’s account at the end of day three?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT