Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams
ID: 2817701 • Letter: D
Question
Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at s60 per share. She borrows $2,000 from her broker to help pay for the purchase The interest rate on the loan is 10%. a. What is the margin in Dée's account when she first purchases the stock? Margin $ 4,000.00 b-1. if the share price fails to $50 per share by the end of the year, what is the remaining margin in her account? (Round your answor to2 declmal places.) Remaining margin ba. if the maintenance margin requirement is 30%, will she receive a margin car? Yes O No . What is the rate of return on her investment? (Negative value should be indicated by a minus sign Round your answer to 2 Rate of return References Book& Resources Worksheet Leaming Objective: 03-04 CompareExplanation / Answer
Answer to Part a.
Value of Stock purchased = 100 * $60 = $6,000
Borrowing from Broker = $2,000
Margin = Value of Stock borrowed - Borrowing
Margin = $6,000 - $2,000 = $4,000
Answer to Part b-1.
Amount = Principal *(1+r)
Amount borrowed = 2,000*(1+0.10) = $2,200
Value of Stock falls to $50 per share
Value of Stock = 100* $50= $5,000
Remaining Margin = Equity in account/ value of Stock *100
Remaining Margin = (5,000- 2,200)/ 5,000 *100
Remaining Margin = 2,800/ 5,000*100
Remaining Margin = 56%
Answer to Part b-2.
As the remaining Margin is greater than minimum maintenance margin of 30%, the investor will not receive call.
Answer to Part c.
Rate of Return on Investment = (Equity in Account - Equity Invested) / Equity Invested *100
Rate of Return on inveInvest = (2,800 - 4,000)/ 4,000*100
Rate of Return on Investment = -30%
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