Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose you have a margin account with a broker which requires the value of your equity in your account to be at least 35% of

image text in transcribed
Suppose you have a margin account with a broker which requires the value of your equity in your account to be at least 35% of total account value. You have $50,000 to invest. You borrow $30,000 on the margin and buy shares of XYZ for $80,000 at $80 a share. After your purchase the price of XYZ has fallen to $60 after 40 days. On the 41 st day, the price rapidly declines to $40.6. You get a margin call from your broker, but instead of depositing more cash into your account, you ask the broker to liquidate part of your holdings of XYZ to meet margin requirements. What dollar value of shares will the brokers sell

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Numerical Methods In Finance

Authors: René Carmona, Pierre Del Moral, Peng Hu, Nadia Oudjane

2012th Edition

3642257453, 978-3642257452

More Books

Students also viewed these Finance questions

Question

Farina Bay

Answered: 1 week ago