Buying on Margin: Example Share Price Initial Margin Cost of Margin Loan Shares Purchased Maintenance Margin...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Buying on Margin: Example Share Price Initial Margin Cost of Margin Loan Shares Purchased Maintenance Margin What is the initial market value of the position? What is the breakdown b/w equity and borrowing? Assets $100 60% 8% 100 30% Value of stock Liabilities and Owner's Equity Loan from broker Equity Buying on Margin: Example Share Price Initial Margin Cost of Margin Loan Shares Purchased Maintenance Margin What is our return on equity if price falls to $90? Assets $100 60% 8% What does our balance sheet look like? Value of stock 100 30% Liabilities and Owner's Equity Loan from broker Equity Buying on Margin: Example Share Price Initial Margin Cost of Margin Loan Shares Purchased Maintenance Margin In 1 year stock price still $100 a share. What is the return on equity to the position? Assets Value of stock $100 60% 8% 100 30% Liabilities and Owner's Equity Loan from broker Equity Assets $100 60% 8% 100 Maintenance Margin 30% At what price will a margin call occur? - When: Margin MMR Equity Market Value < MMR Value of stock Share Price Initial Margin Cost of Margin Loan Shares Purchased Liabilities and Owner's Equity Loan from broker Equity Buying on Margin: Example Share Price Initial Margin Cost of Margin Loan Shares Purchased Maintenance Margin What is the initial market value of the position? What is the breakdown b/w equity and borrowing? Assets $100 60% 8% 100 30% Value of stock Liabilities and Owner's Equity Loan from broker Equity Buying on Margin: Example Share Price Initial Margin Cost of Margin Loan Shares Purchased Maintenance Margin What is our return on equity if price falls to $90? Assets $100 60% 8% What does our balance sheet look like? Value of stock 100 30% Liabilities and Owner's Equity Loan from broker Equity Buying on Margin: Example Share Price Initial Margin Cost of Margin Loan Shares Purchased Maintenance Margin In 1 year stock price still $100 a share. What is the return on equity to the position? Assets Value of stock $100 60% 8% 100 30% Liabilities and Owner's Equity Loan from broker Equity Assets $100 60% 8% 100 Maintenance Margin 30% At what price will a margin call occur? - When: Margin MMR Equity Market Value < MMR Value of stock Share Price Initial Margin Cost of Margin Loan Shares Purchased Liabilities and Owner's Equity Loan from broker Equity
Expert Answer:
Answer rating: 100% (QA)
Answer Okay lets break down this problem stepbystep Given Share Price 100 Initial Margin 60 Cost of ... View the full answer
Related Book For
Financial Theory and Corporate Policy
ISBN: 978-0321127211
4th edition
Authors: Thomas E. Copeland, J. Fred Weston, Kuldeep Shastri
Posted Date:
Students also viewed these finance questions
-
What advice would you give to CEO Larry Culp? In particular, would you continue with the restructuring plan initiated by the previous CEO, John Flannery, implement a more radical unbundling of GE,...
-
Explain why is it important to consider all phases in the lifecycle of a system when conducting a design review. Provide two examples of possible consequences if all lifecycle phases are not included.
-
I am making a Memory Card matching game in java. Currently I have code that will output a 4x4 display of an two-dimensional array that has 2 sets of the same cards (Ace-8). I can click on a card and...
-
Attlee Ltd holds 28% of the issued shares of Nehru Ltd. Attlee Ltd acquired these shares on 1 July 2019 and on this date all the identifiable assets and liabilities of Nehru Ltd were recorded at...
-
In Exercises 1-3, use the power method to approximate the dominant eigenvalue and eigenvector of A. Use the given initial vector x0, the specified number of iterations k, and three-decimal-place...
-
Farmville and Cityville are simple games played by millions of Facebook users, and the Chinese equivalent enjoys almost as much success. What do you think are the elements of Farmville and Cityville...
-
Is the theory of options opposed to the theory of efficient markets?
-
Consider the following facts.62 a. Easing drought conditions in the Black Sea wheat belt are causing world wheat production to recover. b. China is consuming nearly a quarter of the U.S. soybean crop...
-
Which describes the measure of a person's financial worth, determined by adding everything that a person owns, and subtracting everything that the person owes? A. Liability capital B. Owner's equity...
-
Sirius XM Radio Inc. is a satellite radio company, formed from the merger of Sirius and XM in 2008. Exhibit 3.20 presents a statement of cash flows for Sirius XM Radio for 2006, 2007, and 2008....
-
Brown Company makes three different types of pumps. The demand on its high-end model (Model A) has decreased, and Brown has had to reduce its sales price. Brown is now considering whether to...
-
4. Mighty Chocolate manufactures three chocolate bars; Plain Almond Crispy Because of their outstanding quality mighty can sell all of the bars they produce. Select data (per gross) follows: Plain...
-
Except in cases such as natural monopolies, our economy thrives on competition. Legislation such as the Clayton Act regulate behaviors to ensure that competition gets a fair opportunity. We see...
-
You will read the article Zombie Economics by Patrick McCormick and answer the following questions. What is the purpose of the article? How is the 'zombie metaphor' used to relate to economics? Why,...
-
Please solve the following parts by writing a Section in the report for each of them. For part 2 and part 4 you are also asked to submit the Excel file with calculations. Keep it short and help your...
-
1.You decide that, given your love of bacon, you want to start profiting from it.You discover that you can trade in "lean hogs" futures.You find that these futures trade on the Chicago Mercantile...
-
Exercise 10-1 (Algo) Acquisition costs; land and building [LO10-1] On March 1, 2024, Beldon Corporation purchased land as a factory site for $64,000. An old building on the property was demolished,...
-
Calculate the Lagrange polynomial P 2 (x) for the values (1.00) = 1.0000, (1.02) = 0.9888, (1.04) = 0.9784 of the gamma function [(24) in App. A3.1] and from it approximations of (1.01) and (1.03).
-
Agrimex, S.A., a Mexican corporation, borrowed $ 1 million in dollars at a 10% interest rate when the exchange rate was 10 pesos per dollar. When the company repaid the loan plus interest one year...
-
Using simple binomial trees, calculate the value of a call option with the following characteristics: Underlying asset current value = 1,000. Option exercise price = 1,250. Per-period dividends = 10%...
-
Assume the stochastic process for the value of the firm as shown in Fig. Q9.10 (it might be the present value of a project that has several investment phases). There are two call options in sequence....
-
Eastman Company reports the following ($ millions): net sales of $13,557 for 2005 and $12,670 for 2004; end-of-year total assets of $14,968 for 2005 and $18,810 for 2004. Compute its total asset...
-
A fleet of refrigerated delivery trucks is acquired on January 5, 2005, at a cost of $930,000 with an estimated useful life of eight years and an estimated salvage value of $150,000. Compute the...
-
Corazon Company acquires an ore mine at a cost of $1,300,000. It incurs additional costs of $200,000 to access the mine, which is estimated to hold 500,000 tons of ore. The estimated value of the...
Study smarter with the SolutionInn App