Investment Management 1. Nathan purchased 100 shares of WholeFoods stock on marg

Question

Investment Management

1. Nathan purchased 100 shares of WholeFoods stock on margin at a price of $48 a share. The initial margin requirement is 50 percent and the maintenance margin is 30 percent. What is the lowest the stock price can go before Nathan receives a margin call?

2. Brianna purchased five call option contracts with a strike price of $40 and an option premium of $1.5. She closed out contract on the expiration date when the stock was selling for $45.25 a share. What is her total profit or loss on the option position?

3. Ben purchased $10,000 in SuperValue Fund, which has a 5% front load. The market value of the NAV of the fund is $22. How many shares of SuperValue Fund will Ben get for the $10,000 he invested? What is the corresponding NAV?

Explanation / Answer

1. total investment = 100*48 = 4800

70% = 4800 (in case of margin call)

30% = 4800 * 30/70 = 2057.1429

loss = 4800 - 2057.1429 = 2742.8571

loss per share = 27.43

price can go to = 48 - 27.43 = 20.57

2. profit on the transaction = 5*(45.25-40) - 5*1.5 = 18.75

3. number of shares that can be brought = 0.95 * 10,000/22 = 431.82

NAV = 10,000/431.82 = 23.16

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