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You’ve borrowed $20,000 on margin to buy shares in Disney, which is now selling at $40...

  1. You’ve borrowed $20,000 on margin to buy shares in Disney, which is now selling at $40 per share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price falls to $35 per share.

  1. Will you receive a margin call? (Hint: Use the statement "Your account starts at the initial margin requirement of 50%" to figure out how many Disney shares you purchased.)
  2. How far can the price of Disney shares fall before you receive a margin call?

  1. Old Economy Traders opened an account to short-sell 1,000 shares of Disney from the previous question. The initial margin requirement was 50%. A year later, the price of Disney has risen from $40 to $50.

  1. What is the remaining margin in the account?
  2. If the maintenance margin requirement is 30%, will Old Economy receive a margin call?
  3. What is the rate of return on the investment?
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Home nert Page Layout Formulas Data Review View dd-Ins as Cut ta copy. Σ AutoSum Wrap Text General ,_a. ars-函Merge & Center, $, % , 弼,8 C Paste B 1 u. Conditional Format CeInsert Delete Format Formatting as Table Styles2 Clear Sort &Find & Format Painter Clipboard DF151 DE Font Alignment Number Styles Cells Edting DF DG DH DI DJ DK DL DM DN DO DP DQ DR DS DISNEY 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 /4 , EV PE EPS DIV ABNORMAL APV ROSS , deberk | MARGIN MONEY BORROWED FUNDS OWN FUNDS TOTAL INVESTMENT NO OF SHARES PURCHASED = 20000 20000 INITIAL MARGIN 50% 40000/40-1000 SHARES SHARE PRICE FALLS TO 35, REMAINING MARGIN IN ACCOUNT VALUE OF INVESTMENT- BORROWED FUNDS 1000 X 35 35000 20000 15000 REMAINING MARGIN MARGIN BALANCE IN % = REMAINING MARGIN/VALUE OF INVESTMENT * 100 MARGIN BALANCE IN % = 42.86% AS MARGIN BALANCE IS 42.86%, THERE WILL BE NO MARGIN CALL MAINTENANCE MARGIN IS 35% al tax . PB ROPİ te EVA MVALEVERAGED BUYSWAPdistressBRIGHAN CAP GAIN 0:07 26-01-2019

Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum Wrap Text General ta copy. в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Paste Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard Font Alignment Number Styles Cells Edting DF169 DE DF DG DH DI DJ DK DL DM DN DO DP DQ DR 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 4 EV PE EPS DIV ABNORMAL APV ROSS deberk MARGIN MONEY MAINTENANCE MARGIN-35% FORMULA: PRICE (AMOUNT BORROWED/NO OF SHARES) /(1-MAINTENANCE MARGIN) PRICE (20000/1000)/(1-0.35)- 30.77 PRICE WHEN MARGIN CALL IS TRIGGERED 30.77 al tax . PB ROPİ eEVA MVA LEVERAGED BUY SWAP distress BRIGHAN CAP GAIN 0:09 26-01-2019Home nert Page Layout Formulas Data Review View dd-Ins as Cut Σ AutoSum ー E ゴWrap Text copy ▼ в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Sort &Find & 2 ClearFe Select Edting Format Painter Formatting, as Table w styles. ▼ ㆆ ▼ Clipboard CJ189 CI Alignment Number Cells CJ CK CL CM CN cO CP CQ CR CS CT 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 4 EV PE EPS DIV ABNORMAL APV ROSS deberk MARGIN MONEY OLD ECONOMY TRADER VALUE OF SHARES SHORTED INITIAL MARGIN DEPOSIT (50%)-OWN FUNDS TOTAL ASSETS 40000 (1000 X 40) 20000 PRICE RISES TO 50 COST OF COVERING SHORT 1000 X 50 50000 VALUE OF EQUITY-REMAINING MARGIN TOTAL ASSETS COST OF COVERING SHORT VALUE OF EQUITY 60000 -50000 10000 MARGIN BALANCE = VALUE OF EQUITY/COST OF COVERING SHORT MARGIN BALANCE-10000/50000 20.00% YES, THERE IS A MARGIN CALL MARGIN BALANCE IS LOWER THAN MAITENANCE MARGIN (30%) RATE OF RETURN ON INVESTMENT (REMAINING MARGIN-OWN FUNDS)/OWN FUNDS RATE OF RETURN ON INVESTMENT = (10000-20000)/20000= 100 -50.00% al tax . PB ROPİ e ! EVA MVA ! LEVERAGED BUY- SWAP 1 dstress BRIGHAN CAP GAIN L 福 130% 10:16 26-01-2019


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