Question

all blanks need to be solved--crossed out my answers bc they are prob wrong

Marlene Bellamy purchased 300 shares of Writeline Communications stock at $55.46 per share using the prevailing minimum initial margin requirement of 53%. She held the stock for exactly 5 months and sold it without any brokerage costs at the end of that period. During the 5-month holding period, the stock paid $1.69 per share in cash dividends. Marlene was charged 7.8% annual interest on the margin loan. The minimum maintenance margin was 25%. a. Calculate the initial value of the transaction, the debit balance, and the equity position on Marlene's transaction. b. For each of the following share prices, calculate the actual margin percentage, and indicate whether Marlene's margin account would have excess equity, would be restricted, or would be subject to a margin call: (1) $44.04, (2) $71.91, and (3) $34.03. c. Calculate the dollar amount of (1) dividends received and (2) interest paid on the margin loan during the 5-month holding period. d. Use each of the following sale prices at the end of the 5-month holding period to calculate Marlene's annualized rate of return on the Writeline Communications stock transaction: (1) $50.94, (2) $60.44, and (3) $70.24. a. The initial value of the transaction is 5 (Round to the nearest cent.) The debit balance is (Round to the nearest cent.) The equity position is $ . (Round to the nearest cent.) b. (1) If the share price falls to $44.04, the actual margin percentage will be .. (Round to two decimal places.) The account in this case is below minimum maintenance margin (Select from the drop-down menu.) (2) If the share price rises to $71.91, the actual margin percentage will be 0 % (Round to two decimal places.) The account in this case has excess equity . (Select from the drop-down menu.) (3) If the share price falls to $34.03, the actual margin percentage will be %. (Round to two decimal places.) The account in this case is below minimum maintenance margin (Select from the drop-down menu.) c. (1) During the 5-month holding period, the dividends received are $ (Round to the nearest cent.) (2) During the 5-month holding period, the interest paid is SC (Round to the nearest cent.) d. (1) If the sale price at the end of the 5-month holding period is $50.94, the Marlene's annualized rate of return is % (Round to two decimal places. Enter a negative return as a negative number.) (2) If the sale price at the end of the 5-month holding period is $60.44, the Marlene's annualized rate of return is %. (Round to two decimal places. Enter a negative return as a negative number.) (3) If the sale price at the end of the 5-month holding period is $70.24, the Marlene's annualized rate of return is %. (Round to two decimal places. Enter a negative return as a negative number.)

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Answer 1

G H Initial share price Number of shares Inital margin value of transaction Amount invested (equity) Amount borrowed (debit) 55.46 per share 300 53% 16,638 =300*55.46 8818.14 -53%*55.46*300 7819.86 -47%*55.46*300 12 new shar price*no.of shares-amount borrowed+dividend received New Share price Your investment became New margin 44.04 5602.99 42.41% above minimum maintenance margin 71.91 13963.99 64.73% Excess equity 34.03 2599.99 25.47% below minimum maintenance margin new investment level/(new share price*no. of shares) you took loan of 7819.86 Interest paid on loan = 7819.86* 7.8% *(5/12) = 254.15 14 C) 15 Dividend Total Dividend received 1.69 per share 507 -1.69*300 Interest paid Dividend 254.15 507 12997.99 Sale price Total final investment Return (5-month period) Annulized return 50.94 15282 -12.51% -27.44% 60.44 18132 19.81% 54.31% 70.24 21072 53.15% 178.15% Total return = (Final investment - Initial investment + Dividend - Interest paid)/ Initial investment Annulized return = (1+Holding period return)^(1/time in years) = (1+HPR)^(1/(5/12))