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Use the following data for questions 8-10. Assume an initial margin requirement of 55% and maintenance...
Use the following data for questions 8-10. Assume an initial margin requirement of 55% and maintenance margin of 40%. An investor has $5,500 in cash and wishes to purchase ABC stock. ABC is currently trading at $100 per share and your broker charges 7.5% interest on margin loans for the period.
8. What is the return on equity of the margin position after one year when price rises to $120? (a) 20.23% (b) 30.23% (c) 40.23% (d) None of the above
9. What is the return on equity of the margin position after one year when price falls to $80? (a) 20% (b) 42.5% (c) 80% (d) None of the above
10. At what price would you receive a margin call (ignore the interest on margin loan)? (a) $75 (b)$60 (c) $120 (d) None of the above
I need to show work.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Use the following data for questions 8-11. Assume an initial margin requirement of 55% and maintenance...
Use the following data for questions 8-11. Assume an initial
margin requirement of 55% and maintenance margin of 40%. An
investor has $5,500 in cash and wishes to purchase ABC stock. ABC
is currently trading at $100 per share and your broker charges 7.5%
interest on margin loans for the period.
1- What is the return on equity of the margin position after one
year when price rises to $120?
2-What is the return on equity of the margin position...
Suppose a margin account has an initial margin requirement of 50% and a maintenance margin requirement...
Suppose a margin account has an initial margin requirement of
50% and a maintenance margin requirement of 25%.
The account currently has a balance of $10000, so the initial
buying power is $ ___
Suppose the total leverage is used to buy a stock at the price
of $5.00/share. When the stock price falls below the critical price
of $ ___ /share, a margin call will be sent to the account
holder
Assume that your brokerage company requires an initial margin of 65% and a maintenance margin of...
Assume that your brokerage company requires an initial margin of
65% and a maintenance margin of 40%. Assume further that you want
to buy 1200 shares of Madoka Corp. at $75 per share.
A. Calculate the maximum amount of debt you could borrow.
b. Calculate the price below which you will receive a margin
call, assuming you borrowed the amount of debt in “a”.
c. Show what the account balance sheet would look like if the
stock reaches the price...
Assume that your brokerage company requires an initial margin of 60% and a maintenance margin of...
Assume that your brokerage company requires an initial margin of
60% and a maintenance margin of 35%. Assume further that you short
800 shares of Jellyfish Corp. at $40 per share and the price
increases to $56.
a. Calculate your percentage loss based on your current and
initial equity.
b. Calculate the percentage change in the value of the
stock.
c. Show the account balance sheet if you use funds from your
account to buy securities and decrease the loan.
Holly buys 500 shares of Untimely, Inc. at $44 on a 60% initial margin requirement. Maintenance...
Holly buys 500 shares of Untimely, Inc. at $44 on a 60% initial
margin requirement. Maintenance margin is 35% and interest rates on
margin loans are 11%. In 9 months, the stock is at
$68.
A. What is Holly's margin at 68?
B. What is the excess and buying power at 68?
C. When will she get a margin call?
D. If she sells at 68, what is her HPR?
E. If she had done the same trade on a cash...
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.
An investor opens a margin account with a discount broker. The initial margin requirement is 50%....
An investor opens a margin account with a discount broker. The
initial margin requirement is 50%. The maintenance margin is 30%.
The investor intends to buy 1000 shares of XYZ at $40. An interest
rate on the margin loan is 4% per year. The stock does not pay any
dividends.
How much money must the investor deposit?
Assuming the investor deposits $30,000 (NOT the amount you
calculated in part (a) and buys the shares. How far could the stock
price...
An investor opens a margin account with a discount broker. The initial margin requirement is 50%....
An investor opens a margin account with a discount broker. The
initial margin requirement is 50%. The maintenance margin is 30%.
The investor intends to buy 1000 shares of XYZ at $40. An interest
rate on the margin loan is 4% per year. The stock does not pay any
dividends.
How much money must the investor deposit?
Assuming the investor deposits $30,000 (NOT the amount you
calculated in part (a) and buys the shares. How far could the stock
price...
An investor opens a margin account with a discount broker. The initial margin requirement is 50%....
An investor opens a margin account with a discount broker. The
initial margin requirement is 50%. The maintenance margin is 30%.
The investor intends to buy 1000 shares of XYZ at $40. An interest
rate on the margin loan is 4% per year. The stock does not pay any
dividends.
Assume the investor has a cash account (not margin account) and
he or she sells the shares at the price you calculated in part (b).
Recalculate the investor’s rate of...
Suppose the initial margin as established by Stock Market Regulators is 35%. The maintenance margin is...
Suppose the initial margin as established by Stock Market
Regulators is 35%. The maintenance margin is 20%. Suppose that you
have $15,000 in cash that you wish to invest in stock SYPHAX which
currently sells for $60 per share. This stock does not pay
dividends.
1. If you buy on margin, what is the maximum number of shares
that you can purchase? Draw an assets-liabilities table for this
transaction.
2. Ignoring interest expenses, at what stock price will you get...
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