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

Next > < Previous

Related Solutions

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. The interest rate on the loan is 8%. a. If the share price falls to $30 per share by the end of the year, what is the remaining margin in her account? (Keep no decimal place.) b. If the maintenance margin requirement is 30%, will she receive a margin call? yes...

Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at $56 per...

Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at $56 per share. She borrows $3,500 from her broker to help pay for the purchase. The interest rate on the loan is 9%. a. What is the margin in Dée’s account when she first purchases the stock? Margin $ b-1. If the share price falls to $46 per share by the end of the year, what is the remaining margin in her account? (Round your answer...

CSUSM opens a brokerage account and purchases 600 shares of CSU at $45 per share. She...

CSUSM opens a brokerage account and purchases 600 shares of CSU at $45 per share. She borrows $6,000 from her broker to help pay for the purchase. The interest rate on the loan is 7%. o What is the margin in CSUSM account when she first purchases the stock? o If the share price falls to $40 per share by the end of the year, what is theremaining margin in her account? o If the maintenance margin requirement is 30%,...

Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $50 per...

Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $50 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $50 to $55.50, and the stock has paid a dividend of $6.50 per share. a. What is the remaining margin in the account? b-1. What is the margin on the short position? (Round your answer to 2 decimal places.) b-2....

You open a brokerage account and purchase 300 shares of paperboy Inc at $45 per share....

You open a brokerage account and purchase 300 shares of paperboy Inc at $45 per share. you borrow $5,400 from your broker to help pay for the purchase. The interest rate on the loan is 8%. a. What is the margin in your account when you first purchase the stock? b. If the share price falls to $35 per share by the end of the year, what is the remaining margin in your account? If the maintenance margin requirement is...

At the beginning of the year Donald opens a margin account and purchases 500 shares of...

At the beginning of the year Donald opens a margin account and purchases 500 shares of FIN Corp at $40. Donald borrows $5000 from his broker at an annual interest rate of 10% to fund the purchase. a) What is the initial margin? b) What would be the margin if the price of FIN Corp fell to $30 at the end of the year? c) What is the annual return that Donald would make from his investment if the price...

Old Economy Traders opened an account to short sell 1,600 shares of Internet Dreams at $52...

Old Economy Traders opened an account to short sell 1,600 shares of Internet Dreams at $52 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $52 to $60, and the stock has paid a dividend of $2.00 per share. a. What is the remaining margin in the account? (Omit the "$" sign in your response.) Remaining margin $ b. If the maintenance margin requirement...

Kurt opens a trading account with $29,100 on September 25, and purchases 1,200 shares of TPHB...

Kurt opens a trading account with $29,100 on September 25, and purchases 1,200 shares of TPHB stock at $48.50 per share. The account has a 50% initial margin requirement and a 40% maintenance margin requirement. a. What is the highest price of TPHB at which Kurt will get a margin call? b. Suppose that the price of TPHB slowly declines to close at $42.60 on November 30. On December 1, the stock declines dramatically from $42.60 to $36.80. What will...

Shares of Coopers Ltd are selling for ¢45 per share. Brokerage commissions are 2% for purchases...

Shares of Coopers Ltd are selling for ¢45 per share. Brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin debt is 5% per year. Your broker demands an initial margin deposit of 60%. The maintenance margin is 30%. You buy 1,000 shares of Coopers Ltd and the company paid dividends of ¢0.85 per share during the year. a. Assuming that you paid the full cost of the purchase, what is your rate of return...

A stock trader at a brokerage firm has noticed that price changes in the shares of...

A stock trader at a brokerage firm has noticed that price changes in the shares of Summer House Bakery each trade are dependent upon the previous trade's price change. Her observations can be summarized by the following transition matrix. (We are assuming +1/8, 0, -1/8 are the only possible price changes for this stock). Next Price Change Most Recent Price Change +1/8 0 -1/8 +1/8 .7 .2 .1 0 .3 .4 .3 -1/8 .2 .1 .7 A) Provide a...

Subjects