Question
Jessica has a margin account in which she deposits $300,000 (Equity). Assume that the initial margin requirement is 50% and that the margin maintenance is
Jessica has a margin account in which she deposits $300,000 (Equity). Assume that the initial margin requirement is 50% and that the margin maintenance is 15%. Jessica is planning to invest (long) in Ford stock which is currently selling at $40/share. a) Show that Jessica could purchase 15,000 shares, using the maximum allowable margin. b) Assume that the broker charges 5% annual interest rate, assume that the broker's fees are 0.3% of the total amount paid for the purchase and received upon the sale. A year later Jessica receives $1 per share dividend and sells the stock for $45/share. What is the rate of return on her investment? c) Will Jessica receive a margin call if the price of the Ford stock falls during the year to 19$/share? Justify
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