Question
Suppose an investor initially pays $10,000 toward the purchase of $15,000 (200 shares @ $75 per share) worth of stock and borrows the remaining $5,000
Suppose an investor initially pays $10,000 toward the purchase of $15,000 (200 shares @ $75 per share) worth of stock and borrows the remaining $5,000 from a broker.
Complete the balance sheet
Assets | Liabilities and Owners Equity | ||
Value of Stock | $ | Loan from broker | $ |
|
| Equity | $ |
What is the initial percentage margin?
If the share price falls to $60 per share, what will the percentage margin be?
Suppose the maintenance margin in 30%, how far could the stock price fall before the investor would get a margin call?
If the interest rate on the loan is 10% and the stock price has risen to $100 one year later, and the stock has paid a $1.50 per share dividend, what is the rate of return on your investment?
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