Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Boom Trader opens a brokerage account, and purchases 300 shares of Digital Dreams at $40 per share. She borrows $4,000 from her broker to help
Boom Trader opens a brokerage account, and purchases 300 shares of Digital Dreams at $40 per share. She borrows $4,000 from her broker to help pay for the purchase. The interest rate on the loan is 8% for the year. (a) What is her leverage? (b) What is the margin in Boom's account when she first purchases the stock? (c) If the price falls to $30 per share by the end of the year, what is the remaining margin in her account? If the maintenance margin requirement is 30%, will she receive a margin call? (d) What is her return if the stock price immediately changes by 10% ? (e) What would your answer to (d) change if she had financed the initial purchase with $5,000 from her broker
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started