Question

1. The stock price of Apple is $106. You have $10,000 to invest. The monthly interest rate is 0.5%.

a. You think the stock price will go up soon, and want to trade 120 shares. What should you do? Enter 120 for buying 120 shares (on margin if necessary), or -120 for selling or short-selling 120 shares.

b. What is your initial percentage margin (entered as a decimal number)?

c. Two months later, the stock price is $126. What is your percentage margin (entered as a decimal number)?

2. Suppose you just bought the new Windoze 8 and that you realize that it is really bad. As a result, you are sure that the price of Microsoft stock (currently trading for $37.33) is going to fall and you tell your broker to short 140 shares.

a. If the broker's initial margin is 50%, what is the value of personal assets you must add to your account to meet the margin requirement?

b. Assume you have added to your account the value of personal assets determined in part 1. If the broker has a maintenance margin of 30%, what is the highest value the price of Microsoft stock can reach before you are issued a margin call?

c. If the price of Microsoft stock falls to $20, what is the profit you make from the short sale (in $)?

Answer 1

Answer:-

Hope its helps you..

1):-

a: Money borrowed = Value of Facebook stock * (1 - Initial Margin)

Money borrowed = (170*43.18) * (1 - 0.60) = $2936.24

Margin deposited = (170*43.18) * 0.60 = $4404.36

b: Total value of stock on reduced price of $38.72 = 170*38.72 = $6582.40

Margin left on reduced price = Revised value - Borrowed money = 6582.40 - 2936.24 = $3646.16

New percentage margin in the account = Margin left/Revised value = 3646.16/6582.40 = 55.39%

c: Minimum stock price to call margin at maintenance margin 40% =

[borrowed money / (1-Minimum Maint. Margin)] / Number of shares =

[2936.24 / ( 1 - 0.40)]/ 170 = 4393.73 / 170 = $25.85 per share

2:-

Suppose you just bought the new Windoze 8 and that you realize that it is really bad. As a result, you are sure that the price of Microsoft stock (currently trading for $37.33) is going to fall and you tell your broker to short 140 shares.

a. If the broker's initial margin is 50%, what is the value of personal assets you must add to your account to meet the margin requirement?

b. Assume you have added to your account the value of personal assets determined in part 1. If the broker has a maintenance margin of 30%, what is the highest value the price of Microsoft stock can reach before you are issued a margin call?

c. If the price of Microsoft stock falls to $20, what is the profit you make from the short sale (in $)?