Marlene Bellamy purchased 300 shares of Writeline Communications stock at $55 per share using the prevailing minimum initial margin requirement of 50%. She held the stock for exactly 4 months and sold it without brokerage costs at the end of that period. During the 4-month holding period, the stock paid $1.50 per share in cash dividends. Marlene was charged 9% annual interest on the margin loan. The minimum maintenance margin was 25%.
a. Calculate the initial value of the transaction, the debit balance, and the equity position on Marlene's transaction.
b. For each of the following share prices, calculate the actual margin percentage, and indicate whether Marlene's margin account would have excess equity, would be restricted, or would be subject to a margin call.
1. $45
2. $70
3. $35
c. Calculate the dollar amount of
(1) Dividends received
(2) Interest paid on the margin loan during the 4-month holding period.
d. Use each of the following sale prices at the end of the 4-month holding period to calculate Marlene's annualized rate of return on the Writeline Communications stock transaction.
1. $50
2. $60
3. $70