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Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $40 per...

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.


a. How much of her own money does Dee invest when she purchases the stocks? (Note: this is her initial net worth.)


b. What is the initial margin of her account? (Enter a percentage value in the box. Keep no decimal place.)

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 stock price drops to $38 per share after Dee's perchase. Assume Dee doesn't pay interest on the loan.

What is Dee's equity after the price change?

What is Dee's margin after the price change? (Keep two decimal places.)

Solutions

Expert Solution

A) invested amount is = 300*40 = 12000

B) borrowed funds = 4000

C) margin in dee account (A-B) = 8000

1) dee in invested 8000 of own money and 4000 borrowed money

2) dee initial margin = margin/invested value = 8000/12000 = 66.67%

Now price has dropped to 38$

Equity after price change = investment value - borrowed money

= 38*300 -4000 = 7400

dee margin after price change = equity/investment value

= 7400/11400 = 64.91%

jeff jeffy answered 2 years ago
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