Your client wants to purchase stock on margin. You assess the client and the stock and...

Your client wants to purchase stock on margin. You assess the client and the stock and decide that a 40% margin is appropriate. Commissions are 1% and the rate of interest on margin loans is 8%. The current price of the stock is $100/share and your client wants to purchase 1,000 shares.

a. How much cash must your client put into the acc ount to support the initial purchase?

b. Below what price would the price of the stock have to drop for there tois a margin call witha maintenance margin of 30%?

c. What is the profit or loss on this transaction if the client sells the stock 6 months later for $80 a share?

d. What is the profit or loss on this transaction if the client sells the stock 6 months later for $120 a share?

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

PROFIT/LOSS IN DOLLAR TERMS AS NOTHING IS MENTIONED

ANSWER : c : LOSS = 22400

ANSWER : d : PROFIT = 17600

jeff jeffy answered 8 months ago

Next > < Previous

Related Solutions

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.

Your client wants to invest to current investments, your client wants ask you to find out...

Your client wants to invest to current investments, your client wants ask you to find out the next 5 years expected rate of return. 1R1 = 1.50% E(2r1) = 2.5% E(3r1) = 3.0% E(4r1) = 3.5% E(5r1) = 4.5% Instructions: 1] Please using the Unbiased Expectation Theory of the Term Structure of Interest Rates. 2] Please provide a clear calculation and brief explanation to support your calculation.

You purchase 1,000 shares MSFT stock on margin at a price of $150/share. The margin rate...

You purchase 1,000 shares MSFT stock on margin at a price of $150/share. The margin rate is 5% continuously compounded. The margin loan is $50,000. You want to analyze your potential returns under three scenarios for MSFT’s stock price over the next year: i) $120/share ii) $150/share iii) $180/share Fill in the table below to show your work. Current Value MSFT Stock Price 1-year Later $120/share $150/share $180/share Asset Margin Loan Equity % Return

2. Your client is planning to purchase a stock that doesn't pay dividend in the next...

2. Your client is planning to purchase a stock that doesn't pay dividend in the next two years. In the third year the stock will pay a dividend of Rs 10.This dividend will grow at 50% per annum for the next three years. From then onwards the perpetual growth rate will stabilize to -1.00 %(minus one percent) per annum. At 10% cost of equity of what will be the intrinsic value of this stock. Please show step-wise calculations with formulas...

You execute a margin purchase of 200 shares of a stock at $52 per share. The...

You execute a margin purchase of 200 shares of a stock at $52 per share. The initial margin requirement is 60% and the maintenance margin is 35%. a. On a per share basis, what is the minimum amount you must you put up and how much can you borrow from the brokerage house? b. If the price of the stock increases to $64 per share, what is the actual margin in your account? Assume you borrowed the...

You purchase 275 shares of 2nd Chance Co. stock on margin at a price of $53....

You purchase 275 shares of 2nd Chance Co. stock on margin at a price of $53. The initial margin requirement is 70 percent. a. Calculate the initial deposit. (Do not round intermediate calculations. Round your answer to 2 decimal places.) B. What would be the return if you had purchased the stock a) with margin and b) without margin under the following situations? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your...

Casey is considering buying stock on margin. She wants to buy $85,000 in stock; she will...

Casey is considering buying stock on margin. She wants to buy $85,000 in stock; she will put 30% down and borrow the remaining $59,500 at 10% interest. (a) if Casey’s investment goes up by 45 percent after one year, and she pays off her loan, how much will she make in dollars? What percent rate of return does this represent? (b) If Casey’s investment instead drops by 18 percent, how much will she lose in dollars? In terms of a...

You are a tax advisor; and your client wants to open a new business. Provide an...

You are a tax advisor; and your client wants to open a new business. Provide an example of a hypothetical business that the client wants to start. Explain the different business formation options to your client, recommend the optimal choice, and explain the tax advantages of your recommendation. Assume the client in the scenario above has significant investments in the stock market. Discuss the impact of the investments in the stock market on the initial business formation selection. Support your...

Suppose you are a stock broker for WillyP Financial. Your client bought a share of stock...

Suppose you are a stock broker for WillyP Financial. Your client bought a share of stock of Intel at $60 and a share of stock Microsoft at $115. A year later, after your client received a $5 dividend from Intel and $3 from Microsoft, he sold the stock Intel at $55 per share and Microsoft $125. What are the expected after tax returns for your client if your client is (Keep your answer to only two decimals) (a) a church...

1) Why do we get sick? 2) How would you assess that your client is at...

1) Why do we get sick? 2) How would you assess that your client is at risk for eye disease? 3) How do the major components of each body system all interrelate to each other system? 4) List 2 symptoms of dehydration and the amount of fluids/day to ensure adequate hydration is maintained and helps to eliminate wastes from the body?

Subjects