Question

Assume that you had $1500 in cash in your brokerage account on January 2nd. Your broker has an initial margin requirement of 60%. You maximize your investment in NFLX, purchasing shares at the closing price on 1/2/2018 (Price $201.07)

a. What is the total dollar amount of your purchase, assuming you cannot buy fractional shares?

b. Set up your personal balance sheet following the transaction.

c. Set up your personal balance sheet as of market close on 1/29/18. (Price $284.59)

d. What was the percent return on NFLX stock during this time frame?

e. What was the percent return on your investment in NFLX during this time frame, assuming that you paid 0.5% in interest on the margin borrowing?

Answer 1

1. As you can see maximum 7 shares can be bought from $1500 if fraction of shares can't be bought so 7 x $201.07 =$1407.49

2.

Liabilities	amt.	Assets	amt.
Capital	$1500	Investment(shares)	$1407.49
		cash	$92.51
total	$1500	total	$1500

3.

Liabilities	amt.	Assets	amt.
Capital ($1500 + (284.59-201.07) x 7		Investment(shares)(7 x $284.59)	1992.13
		cash	92.51
Total	2084.64	Total	2084.64

4. percentage return on NFLX =$(284.59-201.07) /201.07 x 100 = 41.53%

5. percentage return on NFLX ( if 0.5% interest on borrowing)

total interest of 1 month (january) = $1500 x 0.5/100 = $7.5

so net return will be = 7 x ($284.59-$201.07)-$7.5=577.14

% return = $577.14/1407.49 x 100 = 41.04%