Question

Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at $52 per share. She borrows $2,800 from her broker to help pay for the purchase. The interest rate on the loan is 7%.

a. What is the margin in Dée’s account when she first purchases the stock?

b. If the share price falls to $30 per share by the end of the year, what is the remaining margin in her account? (Round your answer to 2 decimal places.)

c. If the maintenance margin requirement is 30%, will she receive a margin call?

• No

• Yes

d. What is the rate of return on her investment? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

Answer 1

a)
	Margin in Dée’s account = Purchase Price - Money Borrowed from the broker
	Margin in Dée’s account = 100*$52-$2800
	Margin in Dée’s account = $2400
b)	Remaining Margin = Equity Value- Liability to the broker
	Remaining Margin = 100*$30 - ($2800*1.07)
	Remaining Margin = $4
	Remaining Margin Ratio = $4/$3000
	Remaining Margin Ratio = 0.13%
	Yes
c)	Rate of Return = Return - Initial Investment / Initial Investment
	Rate of Return = ($4-$5200)/$5200
	Rate of Return = -99.92%