BU111 Lecture Notes - Lecture 6: Gross Profit, Interest Expense
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BU111 Full Course Notes
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Engage in a transaction whose value is greater than the actual dollar you have. Creates potential to make a larger return or loss than indicated by the investment that you have made. Selling short - deposit 50% value of the transaction. Buying on margin - investment part of value of transaction (margin requirement), broker lends the rest. Annual interest on the margin loan is 10%. Value of shares when sold at + 140x55=7700. Therefore amount of share purchased at a share is 9000/45=200. Value of shares if sold at is 200x55=11000. Subtract initial value of shares - 9000. Must sign hypothecation agreement (margin account agreement form) - securities become collateral for loan. The investor % equity (margin) and the margined stock must always be > the minimum margin requirement. 1 month into the transaction the price of xyz drops to cmv (current market value)
