12.1. Stock transactions: Margin trading

Suppose Susan wants to purchase 700 shares of Desertfly stock at $30 per share through Georgia Brokerage. The value of the shares is $_______?

If Susan does not have enough funding to purchase the shares herself, and Georgia Brokerage requires an initial margin of at least 50 percent, Susans initial equity investment would need to be at least $__________in order for Georgia Brokerage to lend her the funds. If Susan invests this amount, then Georgia Brokerage would cover the remaining $_______.

If the price of Desertflys decreases to $20 per share, then the total value of Susans shares is now $_______. As a result, Susan still owes the brokerage firm $________, and as a result, her equity position is now $_______, which represents ____% of the market value of the stock.

If Georgia Brokerage requires a maintenance margin of 35 percent, then Susan (WILL / WILL NOT) receive a margin call from Georgia Brokerage.

If Georgia Brokerage requires a 10 percent annual interest payment on the loaned funds, the shares paid out an annual divided of $2 per share, and Susan sold the shares at the end of the year when the price dropped to $20 per share, then what would her return on stocks purchased on margin be?

-72.83 percent

-68.40 percent

-63.33 percent

-50.66 percent

If Susan was able to fund the entirety of the stock purchase herself and sold the shares at the end of the year when the price dropped to $20 per share, then what would her return on stocks purchased be?

-32.54 percent

-29.34 percent

-26.67 percent

-23.20 percent

True or False: Based on your calculations, it can be concluded that purchasing stock on margin results in fewer losses if the stock price decreases.

True

False