Question
In: Finance
Ted’s Corporation stock is selling for $50 per share. Ted pays no dividends. Initial margin requirements...
Ted’s Corporation stock is selling for $50 per share. Ted pays no dividends. Initial margin requirements are 50%, and maintenance margin requirements are 30%. You can borrow from your broker at 7% per year on margin debt, but the broker pays nothing on cash balances. Assume for the purposes of these questions (unrealistically, of course) that there are no brokerage commissions. There is nothing else in your account.
a. If you choose to Buy 1,000 shares of TED at $50, What is the smallest check you can write according to regulations as they currently exist?
b. At WHAT PRICE could you expect to get a Margin Call?
c. If instead you choose to SELL SHORT 200 shares of TED at $50, What is the smallest check you can write according to regulations as they currently exist?
d. If you did sell short, At WHAT PRICE could you expect to get a Margin Call?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
(a) Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and...
(a) Consider a stock that pays
annual dividends. It just paid $4.50 dividends per share, and the
next dividend will be paid in 1 year. The dividends are expected to
remain constant at $4.50 per share for the next 10 years, after
which the dividends are expected to decrease at a rate of 0.5% per
year. The annual cost-of-capital is 15.50%. Find the fair value of
the stock today.
(b) Consider the same stock as
described in part (a), except...
(a) Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and...
(a) Consider a stock that pays annual dividends. It just paid
$4.50 dividends per share, and the next dividend will be paid in 1
year. The dividends are expected to remain constant at $4.50 per
share for the next 10 years, after which the dividends are expected
to decrease at a rate of 0.5% per year. The annual cost-of-capital
is 15.50%. Find the fair value of the stock today.
(b) Consider the same stock as described in part (a), except...
(a) Consider a stock that pays annual dividends. It just paid $4.50 dividends per share, and...
(a) Consider a stock that pays
annual dividends. It just paid $4.50 dividends per share, and the
next dividend will be paid in 1 year. The dividends are expected to
remain constant at $4.50 per share for the next 10 years, after
which the dividends are expected to decrease at a rate of 0.5% per
year. The annual cost-of-capital is 15.50%. Find the fair value of
the stock today.
(b) Consider the same stock as
described in part (a), except...
The current market price for ABC is $79 per share. Initial margin is 50%, maintenance margin...
The current market price for ABC is $79 per share. Initial
margin is 50%, maintenance margin is 35% and there is no margin
interest. ABC pays annual cash dividends of $3.95 per share. You
believe the stock price will decrease over the next year and wish
to sell short using margin. Suppose you are correct and the stock
falls to $62 per share at the end of the year. What is your
percentage return on equity for this trade?
Suppose that Intel currently is selling at $50 per share. The rate on margin loan is...
Suppose that Intel currently is selling at $50 per
share. The rate on margin loan is 8%. Investor A purchased 100
shares using 60% margin. Investor B sold 100 shares using 60%
margin. The maintenance margin is 40%. 1. Calculate the margin call
price for Investor A 2. Calculate the margin call price for
Investor B
Suppose that Intel currently is selling at $50 per share. The rate on margin loan is...
Suppose that Intel currently is selling at $50 per share. The
rate on margin loan is 8%. Investor A purchased 100 shares using
60% margin. Investor B sold 100 shares using 60% margin. The
maintenance margin is 40%.
1. Calculate the margin call price for Investor A
2. Calculate the margin call price for Investor B
A stock is selling today for $50 per share. At the end of the year, it...
A stock is selling today for $50 per share. At the end of the
year, it pays a dividend of $3 per share and sells for $56.
Required:
a. What is the total rate of return on the
stock?
b. What are the dividend yield and percentage
capital gain?
c. Now suppose the year-end stock price after
the dividend is paid is $48. What are the dividend yield and
percentage capital gain in this case?
A stock is selling today for $50 per share. At the end of the year, it...
A stock is selling today for $50 per share. At the end of the
year, it pays a dividend of $3 per share and sells for $58.
a. What is the total rate of return on the
stock? (Enter your answer as a whole percent.)
b. What are the dividend yield and percentage
capital gain? (Enter your answers as a whole
percent.)
c. Now suppose the year-end stock price after
the dividend is paid is $42. What are the dividend...
Moutainbrook Company stock is is currently trading at $44 per share. The stock pays no dividends....
Moutainbrook Company stock is is currently trading at $44 per
share. The stock pays no dividends. The standard deviation of the
returns on the stock is 55%. The continuously compounded interest
rate is 6% per year. A three-year European call option on
Mountainbrook stock has a strike price of $50 per share. Using the
Black-Scholes-Merton model, find the premium per share to four
decimal places.
Suppose Amazon stock is trading for $ 535 per share, and Amazon pays no dividends. a....
Suppose Amazon stock is trading for $ 535 per share, and Amazon
pays no dividends.
a. What is the maximum possible price of a call option on
Amazon?
b. What is the maximum possible price of a put option on Amazon
with a strike price of $ 590?
c. What is the minimum possible value of a call option on Amazon
stock with a strike price of $ 500?
d. What is the minimum possible value of an American put...
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