Question

1. You opened a margin account with borrowing $50,000 from your broker a year ago. Your account started at the initial margin requirement of 50%. With the margin account you bought ABC stock at $50 per share. The maintenance margin is 35%. Today, the stock price falls to $45 per share. Assume interest rate is 10%. What is the margin (your equity) in your account when you first purchase the stock? b. Will you receive a margin call? (Please consider interest expenses and Show percentage margin after price falls) C. How low can the price of ABC shares fall before you receive a margin call? Please show both with and without interest expenses. d. What is your rate of return (Consider Interest Expenses)?

Answer 1

Con = New Microsoft Office Excel Worksheet - Microsoft Excel - 0 X Insert Page Layout Formulas Data Review View Home Cut Accounting Eg Copy Wrap Text 1 Merge & Center - Fill Z Paste Insert Delete Format Comic Sans MS-11 - AA BI USA Font fic Format Painter Clipboard A21 Conditional Format Cell Formatting as Table Styles Styles Clear Sort & Find & Filter Select Editing Alignment Number Cells D G H I J K L M N O P 1 2 3 Balance 4 Initial margin 5 Maintenace margin *50,000.00 50% * 25,000.00 35% 17,500.00 6 7 purchased abc stock @50$ per share 8 Number of shares brought * 1,000.00 10 Price as of now @$45 45,000.00 11 12 13 (a) margin of account at purchase of equity *50,000.00 14 (b) we will receive margin call if price go below 32.5 15 if price reaches below 32.5 i.e., 16 below maintenance margin 17 we should add funds and make it initial balance of 50000 18 (c) till 32.5 it can go unitl then we dont recieve margin call 21 22 23 * Ready Sheet6 Sheets Sheet4 Sheet1 Sheet2 Sheet3 + 0 15:59 o Type here to search Ei e a H BO ^ - x 100% ve -» ENG 9 29-02-20206