You purchased 100 shares of Facebook, Inc. common stock on margin at $169.25 per share. Assume...

Question

Question

You purchased 100 shares of Facebook, Inc. common stock on margin at $169.25 per share.
Assume the initial margin is 50% and the maintenance margin is 30%. One year later, the stock
price closes at $172.58. If the broker’s call loan rate is 2.00%, what is your return on equity?
Note that Facebook pays no dividends.

Answer 1

Answer #1

ASSUMING CALL LOAN RATE IS 2% ANNUAL:
Return on Equity=(100*172.58-100*169.25-100*169.25*50%*2%)/(100*169.25*50%)=1.9350%

ASSUMING CALL LOAN RATE IS 2% MONTHLY:
Return on Equity=(100*172.58-100*169.25-100*169.25*50%*2%*12)/(100*169.25*50%)=-20.0650%

Answer 2

Similar Homework Help Questions

You purchased 100 shares of Chipotle Mexican Grill, Inc. (CMG) common stock on margin at $431.79...

You purchased 100 shares of Chipotle Mexican Grill, Inc. (CMG) common stock on margin at $431.79 per share. Assume the initial margin is 50% and the maintenance margin is 30%. One year later, the stock price closes at $837.11. If the broker’s call loan rate is 2.00%, what is your return on equity?
You sold short 100 shares of Macy's, Inc. common stock on margin at $29.78 per share....

You sold short 100 shares of Macy's, Inc. common stock on margin at $29.78 per share. Assume the initial margin is 50% and the maintenance margin is 30%. One year later, the stock price closes at $17.00, and it has paid cash dividends of $1.51 per share. What is your return on equity? Ignore margin interest.
You purchased 200 shares of CNX common stock on margin at $51 per share. Assume the...

You purchased 200 shares of CNX common stock on margin at $51 per share. Assume the initial margin is 50% and the maintenance margin is 34%. You will get a margin call if the stock drops below ________. Assume the stock pays no dividends, and you pay no interest on the margin loan. PLEASE SHOW WORK

You purchased 50 shares of PPI common stock on margin at $100 per share. Assume the...

You purchased 50 shares of PPI common stock on margin at $100 per share. Assume the initial margin is 60% and the maintenance margin is 30%. Below what stock price level by the year end would you get a margin call? The call loan rate is 2% per year. O a) $49.67 Ob) $58.29 O c) $44.97 O d) $52.86
You sold short 100 shares of Kraft Heinz Co. common stock on margin at $83.55 per...

You sold short 100 shares of Kraft Heinz Co. common stock on margin at $83.55 per share. Assume the initial margin is 50% and the maintenance margin is 30%. One year later, the stock price closes at $59.61, and it has paid cash dividends of $2.50 per share. What is your return on equity? Ignore margin interest.
You purchased 100 shares of IBM common stock on margin at $70 per share. Assume the initial margin is 50% and the m...

You purchased 100 shares of IBM common stock on margin at $70 per share. Assume the initial margin is 50% and the maintenance margin is 30%. 1) Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin. (15 pts) 2) Suppose that, unfortunately, the stock price drops to $48. You decide to put some additional cash to restore the margin. How much cash you need to inject to restore...

Assume you sold short 100 shares of common stock at $70 per share. The initial margin is 50%. what would be the maintena...

Assume you sold short 100 shares of common stock at $70 per share. The initial margin is 50%. what would be the maintenance margin if a margin call is made at a price of $85? a.40.5% b.20.5% c.35.5% d.23.5%
You purchased 1,200 shares of stock on margin for $53 per share and sold the shares...

You purchased 1,200 shares of stock on margin for $53 per share and sold the shares 3 months later for $58.60 per share. The initial margin requirement was 55 percent and the maintenance margin was 35 percent. The interset rate on the margin loan was 8 percent. You received no dividend income. What was your holding period return?
Assume you sell short 100 shares of common stock at $18 per share, with initial margin...

Assume you sell short 100 shares of common stock at $18 per share, with initial margin at 54%. What would be your rate of return if you repurchase the stock at $35 per share? The stock paid no dividends during the period, and you did not remove any money from the account before making the offsetting transaction. Answer in percentages, for example if the answer is 43.51%, answer 43.51, and remember to use a dot as a decimal separator Clarification:...

You sold short 1,000 shares of a stock at $46 per share. The initial margin is...

You sold short 1,000 shares of a stock at $46 per share. The initial margin is 50%. a) At what stock price would you receive a margin call if the maintenance margin is 35%? (do not consider dividends in question a) b) Assume that the stock paid a $0.25 dividend per share each quarter, what is the rate of return if you buy to cover the shares at $40 per share at the end of the quarter?