Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose you purchase 100 shares of CBA Inc. at $20 using a margin account as described above. You initially put in $1,000 to buy 50

  1. Suppose you purchase 100 shares of CBA Inc. at $20 using a margin account as described above. You initially put in $1,000 to buy 50 shares and your broker puts in $1,000 to purchase 50 shares. Now suppose the price of CBA Inc. falls to $19. What is the value of your investment? What is the value of the equity in your account? Have you maintained your margin maintenance requirement? Explain.

  1. Now suppose the value of CBA Inc. falls to $8 per share. What is the value of equity in your account now? Have you maintained your margin maintenance requirement? Explain.

  1. Given the events described in b) are you likely to get the dreaded margin call? How much will your broker require you to deposit in the account to achieve the margin maintenance requirement? Make two separate calculations when answering this question. 1) Assume you see this as a short term problem and are simply adding cash to the account and are not reducing the margin and 2) Assume your payment reduces your margin loan.

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

How The Old World Ended The Anglo-Dutch-American Revolution 1500-1800

Authors: Jonathan Scott

1st Edition

0300249365, 9780300249361

More Books

Students also viewed these Economics questions