Suppose you buy shares of a stock worth OMR20000, and the initial margin is 60% and...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Suppose you buy shares of a stock worth OMR20000, and the initial margin is 60% and the maintenance margin is 30%. Suppose the interest rate you must pay is 6% on the borrowed money. Answer the following questions. (a) How much money must you pay the broker for the shares? How much have you borrowed from the broker? (b) Assume the value of the shares rises to OMR25000; a 25% return. Calculate the return on asset you purchased on margin. (c) Assume the value of the shares falls to OMR15000; a -25% return. Calculate the return you purchased on margin. (d) Given the above answers, what happens to risk when you buy a stock on margin? 2. Assume you buy 200 shares of stock and the stock price is OMR70, for a total value of OMR14000. Also assume the initial margin is 60% and the maintenance margin is 40%. Calculate the critical price at which there would be a margin call and interpret the result of margin call 3. Suppose you believe the price of a stock will fall. So, you sell short OMR2000 of the stock. Suppose the initial margin is 40% and the maintenance margin is 20%. (a) How much have you borrowed? How much equity do have in the account after the short sale? (b) Suppose the price of the stock falls to OMR1500. What is your equity in the account? (c) Suppose the price of the stock rises to OMR2500. What is your equity in the account? Suppose you buy shares of a stock worth OMR20000, and the initial margin is 60% and the maintenance margin is 30%. Suppose the interest rate you must pay is 6% on the borrowed money. Answer the following questions. (a) How much money must you pay the broker for the shares? How much have you borrowed from the broker? (b) Assume the value of the shares rises to OMR25000; a 25% return. Calculate the return on asset you purchased on margin. (c) Assume the value of the shares falls to OMR15000; a -25% return. Calculate the return you purchased on margin. (d) Given the above answers, what happens to risk when you buy a stock on margin? 2. Assume you buy 200 shares of stock and the stock price is OMR70, for a total value of OMR14000. Also assume the initial margin is 60% and the maintenance margin is 40%. Calculate the critical price at which there would be a margin call and interpret the result of margin call 3. Suppose you believe the price of a stock will fall. So, you sell short OMR2000 of the stock. Suppose the initial margin is 40% and the maintenance margin is 20%. (a) How much have you borrowed? How much equity do have in the account after the short sale? (b) Suppose the price of the stock falls to OMR1500. What is your equity in the account? (c) Suppose the price of the stock rises to OMR2500. What is your equity in the account?
Expert Answer:
Answer rating: 100% (QA)
a You must pay the broker OMR12000 for the shares and you have borrowed OMR8000 from the broker b The return on asset you purchased on margin is 25 as the value of the shares rose to OMR25000 This can ... View the full answer
Related Book For
Systems analysis and design
ISBN: 978-0136089162
8th Edition
Authors: kenneth e. kendall, julie e. kendall
Posted Date:
Students also viewed these general management questions
-
You should have your own icon for the GUI. You can choose whatever electronics (minimum 5 items). When user make selection on radio button, the selection is appear on edit text that beside "Your...
-
Calculate how many units of your product you will need to sell to break even in each of the five years you have projected.
-
Give a numerical example that illustrates total utility rising as marginal utility declines.
-
When they hear the name Credit Suisse, my grandchildren will likely have to google (or whichever search engine exists then) these two words. For most of my contemporaries here in Switzerland, Credit...
-
According to Statistics Canada, the monthly earnings of workers in the mining industry was $3840, with a standard deviation of $240. A mine worker claims to earn $4325 each month. Find the z score...
-
According to the SEC, one of the methods that Rite Aid used to understate its cost of goods sold was to recognize vendor __________ on sales that had not yet occurred.
-
Explain the difference between a stationary process and a nonstationary process.
-
Amcor, Inc., incurs the following costs to produce and sell a single product. Variable costs per unit: Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10 Direct labor . . ....
-
ABC is a manufacturer. The following balances were extracted from his books on 1 December 2010. Inventories (stocks) 1 January 2010 : Raw materials Work in progress Purchases of raw material Direct...
-
AKEI is an elite desk manufacturer. At the start of May 2015, the following budgeted unit amounts (based on a standard costing system) related to its manufacture of executive desks (made out of oak):...
-
1 . Examine the classified costs data of Cooper Ltd shown below. Direct materials opening inventory 2,500 Direct materials purchases 20,000 Direct materials closing inventory 3,750 Direct labour...
-
A company is considering two mutually exclusive projects. Both require an initial cash outlay of Rs.20000 each, and have a life of five years. The company's required rate of return is 10% and pays...
-
A $1,000 par value bond that pays interest annually just paid $106 in interest. What is the coupon rate? Q2) A 09.60% coupon, 21-year annual bond is priced at $986. What is the current yield for...
-
Problem 1. Consider the Fibonacci numbers, define recursively by F = 0, F = 1, and Fn = Fn1 + Fn-2 for all n 2; so the first few terms are 0, 1, 1, 2, 3, 5, 8, 13, .... Fn For all n >2, define the...
-
You want to buy a piece of farm equipment for $70,000 and the finance office has quoted you a loan with an APR of 12% compounded monthly for 60 months to make the purchase. What will your monthly...
-
Solve the following compound interest problems. a) You invest $30,000 in an account that earns 4% APR compounded monthly. How long will it take for the account to increase by 50%? b) You want to...
-
Harvard Business Publishing Project Management Simulation: Scope, Resources, and Schedule Simulation Scenarios A, B,C, D, E, F & G What assumptions underlie your emerging ideas about managing...
-
Perform the indicated operations. In designing a cam for a fire engine pump, the expression is used. Simplify this expression. (3) (3 4 32
-
What is a fishbone diagram used for?
-
Aymans Office Supplies Company recently had a new information system installed to help its managers with inventory. In speaking with the managers, you notice that they seemed disgruntled with the...
-
What common error is missed by the Luhn formula?
-
How could bottleneck management's recommendations concerning the distinction between activation and utilization relate to personal time management?
-
Line balancing is a technique for scheduling for a system that produces at what level of volume?
-
Give an example in which more than one priority rule is used simultaneously to create a sequence.
Study smarter with the SolutionInn App