Question

1. Louis purchased 300 shares of stock on margin for $22.15 a share and sold the...

1. Louis purchased 300 shares of stock on margin for $22.15 a share and sold the shares eleven months later for $24.50 a share. The initial margin requirement was 75 percent and the maintenance margin was 30 percent. The interest rate on the margin loan was 8.5 percent. He received no dividend income. What was his holding period return?

Multiple Choice

  • 8.45 percent

  • 9.88 percent

  • 10.76 percent

  • 7.05 percent

  • 11.56 percent


2.  

You purchased six put option contracts with a strike price of $30 and a premium of $0.90. At expiration, the stock was selling for $26.80 a share. What is the total net amount you received for your shares, assuming that you disposed of your shares on the expiration date?

Multiple Choice

  • $17,160

  • $17,815

  • $17,955

  • $17,045

  • $17,460

Homework Answers

Answer #1

1). Initial investment = No. of Shares x Initial Stock Price x Initial Margin Requirement

= 300 x $22.15 x 0.75 = $4,983.75

Loan repayment = [No. of Shares x Initial Stock Price x (1 - Initial Margin Requirement)] x (1 + r)n

= [300 x $22.15 x (1 - 0.75)] x (1.085)11/12 = $1,790.24

HPR = [(No. of Shares x Ending Stock Price) - Loan Repayment - Initial Investment]

/ Initial Investment

= [(300 x $24.50) - $1,790.24 - $4,983.75] / $4,983.75

= $576.01 / $4,983.75 = 11.56%

Hence, Option "E" is correct.

2). Total net amount = No. of Shares x (Strike Price - Premium)

= 600 x ($30 - $0.90) = 600 x $29.10 = $17,460

Hence, Option "E" is correct.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
At the beginning of the day, you purchased 300 shares of stock for $75 a share...
At the beginning of the day, you purchased 300 shares of stock for $75 a share with an initial cash investment of $12,000. Your broker requires a 30 percent maintenance margin. At the end of the day, you took care of the margin call by depositing additional $500 in your brokerage account. What was the price of stock at the end of the day?
An investor purchased 300 shares of a company at $25 per share. The stock was bought...
An investor purchased 300 shares of a company at $25 per share. The stock was bought on 70 percent margin (30 percent of the purchase amount was borrowed). One month later, the investor had to pay interest on the amount borrowed at a rate of 3 percent per month. At that time, the investor received a dividend of $0.6 per share. Immediately after receiving the dividend, he sold the shares at $38 per share. The investor paid total commissions of...
You purchased shares of stock one year ago at a price of $63.47 per share. During...
You purchased shares of stock one year ago at a price of $63.47 per share. During the year, you received dividend payments of $1.97 and sold the stock for $70.59 per share. If the inflation rate during the year was 2.47 percent, what was your real return? Multiple Choice 10.35% 11.57% 17.15% 14.36% 8.54%
40) You purchased 300 shares of a non-dividend paying stock for $25.2 a share 6 months...
40) You purchased 300 shares of a non-dividend paying stock for $25.2 a share 6 months ago. Today, you sold those shares for $36.1 a share. What was your percentage annualized rate of return on this investment? 41) You purchased 300 shares of SLG, Inc. stock at a price of $43.3 a share. You then purchased put options on your shares with a strike price of $40.00 and an option premium of $1.8. At expiration, the stock was selling for...
You purchased 700 shares of stock at a price of $73 per share on 50% margin....
You purchased 700 shares of stock at a price of $73 per share on 50% margin. If the maintenance margin is 40%, what is the critical stock price? Show all work. Suppose that in the previous problem you shorted 700 shares instead of buying. The initial margin is 50 percent. If the maintenance margin is 40%, what is the critical stock price? Show all work.
Your brother purchased 400 shares of stock for $28.50 a share. The initial margin requirement is...
Your brother purchased 400 shares of stock for $28.50 a share. The initial margin requirement is 60% and the maintenance margin is 30%. What is the maximum percentage decrease that can occur in the stock price before you receive a margin call?
You purchased 800 shares of stock for $49.20 a share. The initial margin requirement is 65...
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%
You purchased 100 shares of common stock on margin at $45 per share. Assume the initial...
You purchased 100 shares of common stock on margin at $45 per share. Assume the initial margin is 50% and the stock pays no dividend. What would the maintenance margin be if a margin call is made at a stock price of $30? Ignore interest on margin. A.0.33 B.0.55 C.0.43 D.0.23 E.0.253. Assume you purchased 200 shares of GE common stock on margin at $70 per share from your broker. If the initial margin is 55%, how much did you...
You purchased 3000 shares of Microsoft common stock on margin at $80 per share. Assume the...
You purchased 3000 shares of Microsoft common stock on margin at $80 per share. Assume the initial margin is 70%, and the maintenance margin is 30%. What will be your initial position? If the share price falls below to $50 per share, what will be your new position and percentage of margin?
You purchased 200 shares of Facebook common stock on margin at $210 per share. Assume the...
You purchased 200 shares of Facebook common stock on margin at $210 per share. Assume the initial margin is 50% and the maintenance margin is 30%. Three days later, the stock price falls to $190 per share. Will you receive a margin call? (15 points) Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin. (15 points)
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT