Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. You opened a margin account with borrowing $50,000 from your broker a year ago. Your account started at the initial margin requirement of 50%.

image text in transcribed

1. You opened a margin account with borrowing $50,000 from your broker a year ago. Your account started at the initial margin requirement of 50%. With the margin account you bought ABC stock at $50 per share. The maintenance margin is 35%. Today, the stock price falls to $45 per share. Assume interest rate is 10%. What is the margin (your equity) in your account when you first purchase the stock? b. Will you receive a margin call? (Please consider interest expenses and Show percentage margin after price falls) C. How low can the price of ABC shares fall before you receive a margin call? Please show both with and without interest expenses. d. What is your rate of return (Consider Interest Expenses)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Core Concepts of Accounting

Authors: Cecily A. Raiborn

2nd edition

470499478, 978-0470499474

Students also viewed these Accounting questions