You buy 200 shares of stock at a price of $78 and an initial margin of 70 percen

Question

You buy 200 shares of stock at a price of $78 and an initial margin of 70 percent. If the maintenance margin is 40 percent, at what price will you receive a margin call? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

You short sold 350 shares of stock at a price of $40 and an initial margin of 75 percent. If the maintenance margin is 40 percent, at what share price will you receive a margin call? What is your account equity at this stock price? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

             

  Margin call price

$   

  Account equity

$   

3

You’ve just opened a margin account with $14,000 at your local brokerage firm. You instruct your broker to purchase 700 shares of Landon Golf stock, which currently sells for $61 per share. Suppose the call money rate is 5.5 percent and your broker charges you a spread of 1.25 percent over this rate. You hold the stock for 6 months and sell at a price of $67 per share. The company paid a dividend of $0.52 per share the day before you sold your stock.

                 

1.

What is your total dollar return from this investment? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

                     

  Dollar return

$   

            

2.

What is your effective annual rate of return? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

             

  Effective annual return

%

You just sold short 600 shares of Wetscope, Inc., a fledgling software firm, at $59 per share. You cover your short when the price hits $49.5 per share one year later. If the company paid $0.65 per share in dividends over this period, what is your rate of return on the investment? Assume an initial margin of 55 percent. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

                    

  Rate of return

%

You short sold 350 shares of stock at a price of $40 and an initial margin of 75 percent. If the maintenance margin is 40 percent, at what share price will you receive a margin call? What is your account equity at this stock price? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Explanation / Answer

1. Magin Call= 200*78+(200*78*70%)/1.40= 18943

Margin Call Price 94.715

Account Equity 18943

2. Magin Call= 350*40+(350*40*75%)/1.40= 17500

Margin Call Price 50

Account Equity 17500

4.

=(600*(59-49.5)-(600*0.65))/600*59*55%

=(5700-390)/19470

=0.2727

=27.27%

Short Rate of Return = (Stock Sale Price - Dividends Paid - Stock Purchase Price) / Initial Margin Requirement

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