Question

Dée Trader opens a brokerage account and purchases 200 shares of Internet Dreams at $46 per...

Dée Trader opens a brokerage account and purchases 200 shares of Internet Dreams at $46 per share. She borrows $2,400 from her broker to help pay for the purchase. The interest rate on the loan is 8%.


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

b. If the share price falls to $36 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? (Yes/No)

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.) (in%)

Homework Answers

Answer #1

Answer :

(a.) Calculation of Margin

Margin = Purchase price of Asset - Borrowing

= (200 * 46) - 2400

= 9200 - 2400

= 6800

(b.) Calculation of Margin if share price falls to 36

Margin = Value of share - Value of Borrowing including Interest

= (200 * 36) - (2400 * 1.08)

= 7200 - 2592

= 4608

(c.) Margin ratio after the price fall = Margin / Value of share

= 4608 / 7200

= 64%

64% is above the minimum margin requirement , therefore she will not receive the margin call.

(d.) Calculation of Return on Investment

Return on Investment = [ Marginafter share price falls (i.e calculated in part b.) - Initial Margin (calculated in part a )] / Initial Margin

= [4608 - 6800] / 6800

= [4608 - 6800] / 6800

= -2192 / 6800

= -32.235294117 or (-32.24%)

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
Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at $60 per...
Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at $60 per share. She borrows $2,000 from her broker to help pay for the purchase. The interest rate on the loan is 10%. a. What is the margin in Dée’s account when she first purchases the stock? b. If the share price falls to $50 per share by the end of the year, what is the remaining margin in her account? (Round your answer to 2...
Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $38 per...
Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $38 per share. She borrows $4,300 from her broker to help pay for the purchase. The interest rate on the loan is 9%. 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...
Dée Trader opens a brokerage account and purchases 200 shares of Internet Dreams at $44 per...
Dée Trader opens a brokerage account and purchases 200 shares of Internet Dreams at $44 per share. She borrows $4,150 from her broker to help pay for the purchase. The interest rate on the loan is 10%. a. What is the margin in Dée’s account when she first purchases the stock? b. If the share price falls to $34 per share by the end of the year, what is the remaining margin in her account? (Round your answer to 2...
Dée Trader opens a brokerage account and purchases 200 shares of Internet Dreams at $46 per...
Dée Trader opens a brokerage account and purchases 200 shares of Internet Dreams at $46 per share. She borrows $2,400 from her broker to help pay for the purchase. The interest rate on the loan is 8%. a. What is the margin in Dée’s account when she first purchases the stock? (Round your answer to the whole dollar amount and put it in the following format X,XXX. Do NOT record starting 0's.) Margin            $ b-1. If the share price falls...
Dée Trader opens a brokerage account and purchases 200 shares of Internet Dreams at $50 per...
Dée Trader opens a brokerage account and purchases 200 shares of Internet Dreams at $50 per share. She borrows $3,300 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 $40 per share by the end of the year, what is the remaining margin in her account? (Round your answer to...
Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $40 per...
Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $40 per share. She borrows $4,000 from her broker to help pay for the purchase. The interest rate on the loan is 8%. (LO 3-4) 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? c. If the...
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...
Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at $60 per...
Dée Trader opens a brokerage account and purchases 100 shares of Internet Dreams at $60 per share. She borrows $2,000 from her broker to help pay for the purchase. The interest rate on the loan is 10%. a. What is the margin in Dée’s account when she first purchases the stock? b. If the share price falls to $50 per share by the end of the year, what is the remaining margin in her account? (Round your answer to 2...
Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $32 per...
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? 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...
Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $32 per...
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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT