Chapter 2

1) You purchase 300 shares of 2nd Chance Co. stock on margin at a price of $51.50. Your broker requires you to deposit $8,000. What is your margin loan amount? What is the initial margin requirement (expressed as a fraction or percentage)?

2) In the previous problem, suppose you sell the stock at a price of $56. Ignoring any interest on the margin loan, what is your return? What would your return have been had you purchased the stock without margin? Suppose the stock price is $44 when you sell the stock. What is your return? What would your return have been had you purchased the stock without margin?

3) Suppose the call money rate is 2.0 percent, and you pay a spread of 1.75 percentage points over that. You buy 600 shares at $30 per share with an initial margin of 60 percent. One year later, the stock is selling for $39 per share, and you close out your position. What is your return assuming no dividends are paid?