Question

Barbara buys 100 shares of DEM at $35 a share and 200 shares of GOP at

$40 a share. She buys on margin and the broker charges interest of 10 percent on the

loan. (MUST BE DONE ON EXCEL)

(a) If the margin requirement is 55 percent, what is the maximum amount

she can borrow?

(b) If she buys the stocks using the maximum amount of borrowed money

and holds the securities for a year, how much interest must she pay?

(c) If a year after buying the stocks she sells DEM for $29 a share and GOP

for $32 a share, how much did she lose on her investment, including the interest she

paid her broker?

(d) What is the percentage loss on the funds she invested (i.e., her own

funds, not including the borrowed funds) if the interest payment is included in the

calculation?

Answer 1