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Investments (FINC-4304) Practice Problems - Chapter 3 1. Assume you purchase 200 shares of Puppy Trade, Inc. common stock on margin at $80 per share

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Investments (FINC-4304) Practice Problems - Chapter 3 1. Assume you purchase 200 shares of Puppy Trade, Inc. common stock on margin at $80 per share from your broker. If the initial margin is 60%, the amount you borrowed from the broker is 2. The margin requirement on a stock purchase is 50% and the minimum margin requirement is 30%. You fully use the margin allowed to purchase 100 shares of MSFT at $40. A) At what price do you receive a margin call? B) If there is decline in share price from $40 to $32 (assuming no margin call). What would be your percentage loss? 3. You sell short 500 shares of Altria Inc., now selling for $40 per share (you earn no interest on the funds in your margin account; the firm does not pay any dividends). The IMR is 50%; MMR is 30%. A) What is your maximum possible gain, ignoring transactions cost? And maximum possible loss? B) At which share price do you receive a margin call? C) If you liquidate your position at the margin call price (found above in B), what would be your total (percentage) return

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