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Problem 3-02

Lauren has a margin account and deposits $35,000. Assume the prevailing margin requirement is 40 percent, commissions are ignored, and the Gentry Wine Corporation is selling at $30 per share.

1. How many shares can Lauren purchase using the maximum allowable margin? Round your answer down to the nearest whole number.

   shares

2. What is Laurens profit (loss) if the price of Gentrys stock
   1. rises to $45? Use a minus sign to enter loss, if any. Round your answer to the nearest dollar. Use the rounded value of the number of shares from part a.

      $

   2. falls to $25? Use a minus sign to enter loss, if any. Round your answer to the nearest dollar. Use the rounded value of the number of shares from part a.

      $

3. If the maintenance margin is 30 percent, to what price can Gentry Wine fall before Lauren will receive a margin call? Round your answer to the nearest cent. Use the rounded value of the number of shares from part a.

   $

2)

Suppose you buy a round lot of Francesca Industries stock (100 shares) on 55 percent margin when the stock is selling at $15 a share. The broker charges a 12 percent annual interest rate, and commissions are 4 percent of the stock value on the purchase and sale. A year later you receive a $0.50 per share dividend and sell the stock for $21 a share. What is your rate of return on Francesca Industries? Do not round intermediate calculations. Round your answer to two decimal places.

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