Question
Sam bought 100 shares of Ultra Ltd at $60 each using her margin account on 10 January 2022. The broker requires an initial margin of
Sam bought 100 shares of Ultra Ltd at $60 each using her margin account on 10 January 2022. The broker requires an initial margin of 50%, a maintenance margin of 30% and charges 8% interest pa.
I) Calculate Sams initial equity on 10 January 2022. 1 mark If on 11 January 2022 the share price dropped to $55, what was the actual margin on Sams account? Did she get a margin call? 3 marks
II) Ignoring all costs calculate the share price at which there will be a margin call made by the broker. 4 marks
III) If Sam sold the shares on 11 January 2022, what would have been her percentage return? Ignore all costs. 2 marks
IIII) Now assume Sam bought the shares with only her own money. Ignoring all costs, what would have been her percentage return if she sold the shares on 11 January 2022? Is it different than the answer to d? If so explain why
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