Question

# Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at \$52 per...

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.)

 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%

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