Question

Use the following to answer the next three questions. Three months ago, you purchased 1000 shares of ABC stock on margin at $15/share. The initial and maintenance margins are 60% and 40%, respectively. Your broker charges you a 6% annual interest rate on borrowed funds. You've received a $1 dividend per share over the course of your investment. ABC trades for $12/share today. Find your current margin. Round intermediate steps and your final answer to four decimals and enter your answer in decimal format (EX: .XXXX).

Find the lowest price that ABC can trade for before you receive a margin call. Round your final answer to two decimals.

		4.29
		6.43
		15
		10

Find your ROIC if you choose to close your margin position today. Round intermediate steps and your final answer to four decimals and enter your answer in decimal format (ex: .XXXX).

Answer 1

Initial margin ==> 100*15*60% ==> 9000

Interest ==> 1000*15*40%*6%

Decrease in value of stocks ==> 1000*(15-12) ==> 3000

Dividends ==> 1000*1 ==>1000

Current Margin ==>(9000-36-3000+1000)==>6640

value of stocks ==> 1000*12 ==> 12000

Therefore the current margin ==> 6640/12000 ==>0.5533

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