Question
Sara Sanders purchased 30 shares of Apple stock at $189.91 per share using the prevailing minimum initial margin requirement of 50%. She held the stock
Sara Sanders purchased
30
shares of Apple stock at
$189.91
per share using the prevailing minimum initial margin requirement of
50%.
She held the stock for exactly
4
months and sold it without any brokerage costs at the end of that period. During the
4-month
holding period, the stock paid
$1.49
per share in cash dividends. Sara was charged
5.2%
annual interest on the margin loan. The minimum maintenance margin was
25%.
a. Calculate the initial value of the transaction, the debit
balance,
and the equity position on Sara's transaction.
b. For each of the following share prices, calculate the actual margin percentage, and indicate whether Sara's margin account would have excess equity, would be restricted, or would be subject to a margin call:
(1)
$175.86,
(2)
$207.94,
and (3)
$122.54.
c. Calculate the dollar amount of (1) dividends received and (2) interest paid on the margin loan during the
4-month
holding period.d. Use each of the following sale prices at the end of the
4-month
holding period to calculate Sara's annualized rate of return on the Apple stock transaction:(1)
$184.35,
(2)
$195.98,
and (3)
$206.18.
a. The initial value of the transaction is
$enter your response here.
(Round to the nearest cent.)The debit balance is
$enter your response here.
(Round to the nearest cent.)The equity position is
$enter your response here.
(Round to the nearest cent.)b. (1) If the share price falls to
$175.86,
the actual margin percentage will be
enter your response here%.
(Round to two decimal places.)The account in this case
has excess equity
is restricted
is below minimum maintenance margin
. (Select from the drop-down menu.)(2) If the share price rises to
$207.94,
the actual margin percentage will be
enter your response here%.
(Round to two decimal places.)The account in this case
has excess equity
is restricted
is below minimum maintenance margin
. (Select from the drop-down menu.)
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