Part 1: Dée Trader opens a brokerage account and purchases 300 shares of Interne
ID: 2616524 • Letter: P
Question
Part 1:
Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $38 per share. She borrows $4,300 from her broker to help pay for the purchase. The interest rate on the loan is 9%.
a. What is the margin in Dée’s account when she first purchases the stock?
b-1. If the share price falls to $28 per share by the end of the year, what is the remaining margin in her account? (Round your answer to 2 decimal places.)
b-2. If the maintenance margin requirement is 30%, will she receive a margin call?
c. What is the rate of return on her investment? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)
Part 2:
Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $45 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $45 to $49.50, and the stock has paid a dividend of $5.40 per share.
a. What is the remaining margin in the account?
b-1. What is the margin on the short position? (Round your answer to 2 decimal places.)
b-2. If the maintenance margin requirement is 30%, will Old Economy receive a margin call?
c. What is the rate of return on the investment? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)
Extra if Possible:
Part 3:You sell 490 shares of stock short that are priced at $54.15 a share. You post the 50% margin required. If the maintenance margin requirement (MMR) is 30% at what stock price do you get a margin call?
Explanation / Answer
Part - 1
a. total amount required to pay for purchasing the shares = 300 * $38
=$11,400
But Dee Trader has no money for purchasing the shares then she has borrow $4,100 for Broker to purchase the same.
So the Initial Margin = $11,400 - $4,300
=$7,100.
b-1. If price falls to $28,
then the Margin = 300 * $28 - $1300
= $ 7,100
b-2. If the Maintaince margin required @ 30% = $8400 * 30% = $2,520
But Dee trader have only $1,300.
Then Dee trader recieve a margin call of = 2,520*
* If the Margin Call are made by the broker, then it is necessay for the investor to contribute in such type that completed his initial margin.
b-3. rate of Return = ($8,400 - $ 11,400)*$11,400
= -26.32%
Part -2.
All the parts are same which are solve above. Only you can put value as like as above then you can get answer the second part.
Part -3.
If the share price is fall upto 30%, then the margin call is made by the Broker.
Thanks.