Question

Question 1 Explain whether the following is True or False. A. Ordinary investors cannot access to the primary security market as it is designed for funding raising at the corporate level. B. Money market mutual funds is a portfolio consisting stocks with maturity less than one year C.The risk tolerance of youngsters is always larger than elderly. D. Risk loving investors tend to assign a larger percentage of his assets as stock than bond. E. It is possible to gain in a bear market.

Question 2

• You plan to buy 500 shares of “UNIc” at $20. Given that the initial margin is 40% and maintenance margin is 30%. At what price you will receive a margin call?

Can anyone help me with those two questions with detailed explanations? Appreciate with thanks.

Answer 1

A. It is true, that ordinary investors cannot access the primary market because ordinary investors buy and sell shares in the secondary market.

B. It is TRUE, money market funds consist of securities which are less than a year. They are highly liquid securities.

C. TRUE. The risk appetite and tolerance of youngsters is more than the elders.

D. TRUE. Risk loving investors allocate a greater portion of their wealth to stocks rather than bonds as stocks are more riskier than bonds.

E. Yes, it is possible to gain in a bear market. The investors can buy put options and gain a profit in bear markets.

The stock can be purchased for a total price of: 500 * $20

=$10,000

Initial margin ( Equity) = $4,000

Amount borrowed = $6,000

The price at which i will receive a margin call is :Since, the maintenance margin is 30%,the market value should be :

Market value = Amount borrowed/ (1 - Maintenance margin)

= $6,000 / (1 - 0.3)

=$8571.4286

Considering there are 500 shares, the price at which we may receive a margin call is :

= $8571.4286/ 500

=$17.14

The price a which i receive a margin call is $17.14.