Question

GPA PLUS Inc. stock sells today for $30/share. You buy 1000
shares with your own money. The stock

doesn’t pay a dividend.

a. What are the rates of return if the price immediately goes to
$40, to $14?

b. Instead of buying all the shares with your own money, you borrow
$10000 to finance the

purchase of 1000 shares at $30. What is your initial margin?

c. What are your rates of return on your portfolio with borrowing
if the price immediately goes

to $40, to $14?

d. What do these latter results suggest relative to your rates of
return the portfolio without

borrowing?

e. With borrowing, how much must the share price fall from $30
before you must add cash to

meet your maintenance margin of 30%?

Answer #1

Suppose you invest $1000 of your own money and borrow the
maximum amount available to you on margin and also invest that
money. The initial maintenance requirement is 50%.
(10 points) What is the total amount invested?
(10 points) The asset you purchase immediately goes up 8%. What
is the return on your invested money?
(10 points) Instead of what happens in (b) above, the price of
the asset rises 16% over the first year. You pay 5% interest on...

2. Suppose you short sell 100 shares of stock X, which now sells
for $200/share. What is your maximum possible loss? What happens to
the maximum loss if you simultaneously place a "stop-buy" order at
$210?
3. Suppose that you open a brokerage account and purchase 300
shares of stock Y at $40/share. You borrow $4,000 from your broker
to help you pay for the purchase. The interest rate on your loan is
8%. What is the margin in your...

You own, 1000 shares of stock in Avondale Corporation. You will
receive a $1.95 per share dividend in one year. In two years, the
company will pay a liquidating dividend of $65 per share. The
required return on the stock is 15 percent. What is the current
share price of your stock(ignoring taxes)? if you would rather have
equal dividends in each of the next two years, show how you can
accomplish this by creating homemade dividends. (hint: Dividends
will...

Suppose that Intel currently is selling at $20 per share. You
buy 1,000 shares using $15,000 of your own money, borrowing the
remainder of the purchase price from your broker. The rate on the
margin loan is 8%. (a) What is the percentage increase in the net
worth of your brokerage account if the price of Intel immediately
changes to $22. (b) If the maintenance margin is 25%, how
low can Intel’s price fall before you get a margin call?

Suppose that LMN stock currently is selling at $52 per share.
You buy 500 shares using $20,000 of your own money, borrowing the
remainder of the purchase price from your broker. The rate on the
margin loan is 9%.
a. What is the percentage increase in the net
worth of your brokerage account if the price of LMN
immediately changes to: (i) $56.68; (ii) $52; (iii)
$47.32? What is the relationship between your percentage return and
the percentage change in...

You are bullish on Telecom stock. The current market price is
$30 per share, and you have $3,000 of your own to invest. You
borrow an additional $3,000 from your broker at an interest rate of
6.5% per year and invest $6,000 in the stock.
a. What will be your rate of return if the
price of Telecom stock goes up by 8% during the next year? (Ignore
the expected dividend.) (Round your answer to 2 decimal
places.)
b. How...

Suppose you purchase 500 shares of Wal-Mart common
stock at $75 per share by borrowing finds, and your initial margin
is 65%. The maintenance margin is 55%.
How much of your own money will you have to
provide?
What is the price at which you would begin to receive a
margin call?

You own 500 shares of Stock A at a price of $60 per share, 405
shares of Stock B at $80 per share, and 500 shares of Stock C at
$41 per share. The betas for the stocks are .8, 1.8, and .7,
respectively. What is the beta of your portfolio? (Do not
round intermediate calculations. Round your answer to 2
decimalplaces.)
Beta

you purchase 300 shares of square enix at $40 per share. To pay
the purchase, you borrow $4000 from broker
what is the % margin in your account when you first purchase
the stock
if the share price falls to $30 per share. if the maintenance
requirement is 30%, will u receive a margin call
if interest rate on loan over the borrowing period is 5%. what
is the rate of return on your account when you sell the stock...

You purchased 800 shares of stock for $49.20 a share. The
initial margin requirement is 65 percent and the maintenance margin
is 35 percent. What is the lowest the stock price can go before you
receive a margin call? What is your return if price per share goes
up to $60 (assume no interest)?
$9.27; 40%
$26.49; 25.67%
$17.22; 50%
$26.49; 33.77%

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