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?

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 1 year ago

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