Question

Dée Trader opens a brokerage account and purchases 300 shares of
Internet Dreams at $32 per share. She borrows $4,600 from her
broker to help pay for the purchase. The interest rate on the loan
is 6%.

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

Margin $

**b-1.** If the share price falls to $21 per share
by the end of the year, what is the remaining margin in her
account? **(Round your answer to 2 decimal
places.)**

Remaining margin %

**b-2.** If the maintenance margin requirement is
30%, will she receive a margin call?

No | |

Yes |

**c.** 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.)**

Rate of return
%

Answer #1

Question - a

Initial Margin = Value of stock - value of borrowing = 300 * 32
- 4600 **= 5000**

Question - b

Remaining Margin = Value of stock (end of the year ) - Value of the borrowing ( end of the year )

= 300 shares * 21 - 5000 * ( 1.06) = 6300 - 5300 **=
1000**

Question b - 2

Current margin ratio = Remaining margin / Value of stock (ending) * 100

= 1000 / 6300 * 100 = 15.87 % .......... this is lower than the required 30% maintenance margin. Hence a call will be received.

**Yes**

Question - c

Rate of return = ( Remaining margin - Initial Margin) / Initial margin * 100

= ( 1000 - 5000 ) / 5000 **= - 80%**

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Internet Dreams at $32 per share. She borrows $4,600 from her
broker to help pay for the purchase. The interest rate on the loan
is 6%.
a. What is the margin in Dée’s account when she first purchases
the stock?
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year, what is the remaining margin in her account? (Round your
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