Question
You opened a margin account with borrowing $50,000 from your broker a year ago. Your account started at the initial margin requirement of 50%. With
You opened a margin account with borrowing $50,000 from your broker a year ago. Your account started at the initial margin requirement of 50%. With the margin account you bought ABC stock at $50 per share. The maintenance margin is 35%. Today, the stock price falls to $45 per share. Assume interest rate is 10%. What is the margin (your equity) in your account when you first purchase the stock?
Will you receive a margin call? (Please consider interest expenses and Show percentage margin after price falls)
How low can the price of ABC shares fall before you receive a margin call? Please show both with and without interest expenses.
What is your rate of return (Consider Interest Expenses)?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To calculate the margin equity in your account when you first purchased the stock we need to determine the initial investment Initial investment Total ...
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Step: 2
Step: 3
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Financial Reporting Financial Statement Analysis And Valuation A Strategic Perspective
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
9th Edition
1337614689, 1337614688, 9781337668262, 978-1337614689
