๐Ÿท๏ธ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION โ†’
Log in
Finance
2
answers
0
watching
198
views
2 Jan 2018

if you want to buy 20,000 stocks at $10 on share but you wanted to only invest $12,000 AND you would borrow $8000 from the broker then the margin would be equal to? Assume that you sold the above shares after at $12 per share then your return would be? (show work please)

Watch
2
answers
0
watching
198
views

For unlimited access to Homework Help, a Homework+ subscription is required.

27 May 2023

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share
Already have an account? Log in
Share

Related questions

You decide to purchase on margin 1000 shares of ABC stock currently trading at $25 each. Your initial margin is 40% and your broker allows you a buffer of 10% before making a margin call รขย€ย“ i.e., the maintenance margin is 30%.

(a) How much must you invest initially to purchase the shares and what is the amount you borrow from your broker?

(b) How far can share price fall before a margin call is triggered?

(c) Now assume that share price drops to $20. You received a margin call and you decided to deposit T-bills in your account to increase the margin; the deposit will increase the total value of your margin account while NOT changing the value of the loan. That is, the total value of your account will be the sum of the value of 1000 shares and the value of T-bills. What is the total value of T-bills you need to put up, in order to get the margin back up to the maintenance margin of 30%?

(d) If you do not take an action in time your broker will partly liquidate your position and repay the loan in order to (just) meet the maintenance margin requirement. How many shares would the broker sell in order to get the margin back up to the maintenance margin of 30%?

1.You buy 100 shares of Starbucks at $55. At the end of the year it is selling for $65. What is the percentage return of your investment?

2.In problem one you make the same investment. However, you do not have $5,500 to invest so you open a margin account. You are able to put up 60% per share and borrow the rest from the broker. The broker charges you brokers call (2%) plus 1. What is your return at the end of the year?

3.Redo 1 and 2 assuming that Starbucks paid a $1.50 dividend.

4.Redo 1 and 2 assuming that during the year it was announced that Starbucks is losing market share to competitors and the stock has tumbled to $45. (do not include the dividend in question 3 in this problem)

5.If the broker requires a maintenance margin of 35%, at what price will you get a margin call?

6.You sell Visa short at $70 per share. At the end of the year you close out your position when V is selling for $60 per share. You are required to put up 60% of the original stock price plus the amount you sell V for ($70). What is your percentage return? How does your return change if V pays a $2.60 dividend?

Hello guys, I have a question and I found an answer but it missing some detailes so I need more explanation on this question please. Part B is missing and Part A, B needs more detailes

Suppose you purchase 1000 shares of Disney stock at $90 per share using margin. Your broker requires an initial cash investment of 60%.

A. If your broker requires a 40% maintenance margin, at what share price will you be subject to a margin call? Show all work.

B. If a margin call does occur, what alternatives do you have?

C. At the end of the year, suppose that the price per share of Disney is $86 and that Disney issued a dividend of $3 per share. Also, suppose that any interest charged on borrowed funds for one year is 10%. Calculate the return on your investment

ANS:

Total amount borrowed by the buyer of 1000 shares of disney stock = (1000 * 90) - (1000 * 90 * 60 %)

= 90000 - 54000

= $ 36,000.

Price of margin call = (36000 / 1000) / (1 - 0.40)

= 36 / 0.60

= $ 60.

Margin call price = $ 60.

Return on investment :-

= [ (1000 * 86) + (1000 * 3) ] - [ (36000 * 10 %) + (1000 * 60) ] / [ (1000 * 60) + (36000 * 10 %) ]

= [ 86000 + 3000 ] - [ 3600 + 60000 ] / [ 60000 + 3600 ]

= (89000 - 63600) / 63600

= 25400 / 63600

= 0.40 i.e., 40 % (approx)

Return on investment = 40 % (approx)

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in