Assume that you would like to buy 100 shares of a stock that is currently priced
ID: 1170008 • Letter: A
Question
Assume that you would like to buy 100 shares of a stock that is currently priced at $ 70. The initial margin is 75% and maintenance margin is 35%.
How much would the total purchase amount to in dollars.
How much in total cash of your own do you need in dollars in this example?
How much will you be able to borrow in dollars in this example?
Show your total dollar amount of investment and your results in table below.
Price = 70
Total value of investment =
Loan=
Equity =
Total Assets =
Liabilities + Equity=
Calculate the margin for this case.
If the market value of the stock falls to $ 60 (from when it was 70) after one year, provide a new balance sheet
Price=60
Total value of investment
Loan =
Equity =
Total Assets =
Liabilities + Equity=
Calculate the margin for this case.
If the market value of the stock further falls to $ 40 (from when it was 70) after one year, provide a new balance sheet
Price=40
Total value of investment =
Loan =
Equity =
Total Assets =
Liabilities + Equity=
Calculate the margin for this case.
Price = 70
Total value of investment =
Loan=
Equity =
Total Assets =
Liabilities + Equity=
Explanation / Answer
the total purchase amount = 100*70 = 7000 the initial margin = 7000 * 75% = 5250 the borrowed amount = 7000 - 5250 = 1750 Price = 70 Total Value $7,000 Loan 1750 Equity 5250 Total Assets $7,000 Liab+Equity $7,000 Margin = 75% Price = 60 Total Value $6,000 Loan 1750 Equity 4250 Total Assets $6,000 Liab+Equity $6,000 Margin = 70.83% Price = 40 Total Value $4,000 Loan 1750 Equity 2250 Total Assets $4,000 Liab+Equity $4,000 Margin = 56.25%